Saturday, May 28, 2016


1. Mr. Speaker, Sir, I beg to move that the estimates on the recurrent and developmentaccounts for the 2016/17 budget of the Government of Malawi be referred to the committees of Parliament before they are considered by the Committee of the Whole vote by vote, and that, thereafter, they be adopted.

2. Mr Speaker, Sir, once more, I feel greatly humbled by His Excellency the State President, Professor Arthur Peter
Mutharika, for assigning to me the noble responsibility of leading his economic management team. At the outset, I am
pleased to present my third budget of the current administration, and to do so at a time when significant progress is being registered towards strengthening the public finance management system, as confirmed by the International Monetary Fund (IMF) in March this year.

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3. On the other hand, I stand here to present before this august House yet another budget that has been prepared
against the backdrop of various socioeconomic challenges facing our country, key among them being the food insecurity crisis occasioned by the El Nino climatic episode that the country has undergone for the second time consecutively. While, as expected, I will touch on this subject in detail later as did His Excellency the President, let me hasten to state that I am pleased to report that some pledges have already started being received by Malawi in response to the proclamation of a State of National Disaster by His Excellency the President.
I am therefore confident that, with the cooperation of all Malawians and our development partners, we will, once again, overcome this challenge.
4. Mr Speaker, Sir, the country continues to face significant resource constraints due to continued deep reductions in donor support that was habitually provided to us through the budget. Over and above that, it has been lamentable that our collection of tax and non-tax revenues has also declined
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in 2015/16, despite the ever-increasing demands for the delivery of critical public goods and services. In this context, I wish to ask the House to commend the African Development Bank (ADB) for its recent pledge of budget support, once again.
Honourable Members will recall that the ADB also came to the country’s rescue with budgetary support during the 2014/15
financial year. Similarly, during his visit to Malawi in April 2016, the new ADB president pledged further support for the current and the coming financial years.
Malawi is grateful for this generosity. More generally, our ability to ride over the catastrophic climatic episode of last year was due to such support, especially that received from the World Bank, the United States Government, the United Kingdom, and other large bilateral donors.
Moreover,Mr. Speaker, Sir we are yet to use the pledged support from China and Japan. We are also proud that Egypt and South Africa,as brotherly African countries, also came to our rescue. I want to emphatically register
our gratitude for the assistance received from all our multilateral and bilateral development partners towards the
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implementation of various Government programmes, regardless of whether or not such assistance was channelled through
the national budget. We remain hopeful that our development partners will continue to provide this support, to assist us in addressing our short-term food security and social challenges, and meeting our enormous developmental needs.
5. Therefore, Mr Speaker, Sir, the budget that I am presenting to this august House is therefore not just concerned with funding Government ministries, departments and agencies, but also seeks to address some of the short and medium-term challenges that we have faced and will continue to face as a result of climate change.
This must remain our policy, and all Malawians and development partners must focus on the achievement of this policy if we are to be relevant to this country’s needs for some time to come.
6. As part of the drive towards the promotion of a hardworking spirit, it is of utmost importance that the public and
private sector resources should be utilised
where they are most productive. It is for this reason that the Government continues to intensify its fight against fraud and corruption, because these societal evils create a huge disincentive for hard work, while at the same time mis-directing resources from productive use.
In addition, the payment of Western-style bonuses to top executives in the private sector must be a major Government concern, because it entails a waste of resources that could have been re-invested productively. It also worsens income inequalities, and creates disincentives in other equally important sectors of the economy. The practice in some companies to pay salaries equal to those received by executives in developed countries and grant them huge perks
should be roundly questioned, just as it was questioned in those countries in the wake of the 2008 economic meltdown. Surely, salaries equivalent to US20,000 per month or more in Malawi cannot be conducive to the needed investments nor to continued social harmony.
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7. At this point, Mr Speaker, Sir, I would also like to discourage what has emerged as a persistent culture of demanding more and more of the limited Government resources among the leaderships of some of our public institutions, through enhanced conditions of service. These demands are increasingly becoming insensitive to the economic depression that the country is passing though and, therefore, unpatriotic.
Global, Regional and National Economic Performance
8. Mr Speaker, Sir, before delving deep into budgetary matters, let me share with the House the global, regional and national economic outlook to show that the economic depression that has inflicted Malawi has engulfed the SADC region and affect other countries as well.
The Global Economy
The world economy is becoming increasingly integrated, and sound economic management requires that we should be fully aware of the changes around us. In this regard, I wish to inform the
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House that the global economy slowed down in 2015 to 3.1 percent, from 3.4 percent in 2014. The decline reflects a slowdown in emerging market economies, especially commodity exporters, due to low export prices. In 2015, oil and non-oil commodity prices declined by 47.3 percent and 17.5 percent, respectively. However, this decline was partially offset by modest growth in some advanced economies, especially in the Euro area.
This was triggered by the same decline in commodity prices, stronger private consumption, as well as expansionary monetary policies.
9. Mr. Speaker, Sir, the world economy is projected to grow by the same 3.1 percent in 2016, but higher growth prospects are projected for 2017. Despite the stronger performance in some emerging markets, growth prospects remain subdued in most advanced economies. In terms of emerging markets, India’s growth is projected to strengthen from 7.3 percent in 2015 to 7.5 percent in 2016 on account of recent policy reforms, investment growth, and lower
commodity import prices. On the other hand, a slowdown in economic growth is
expected in China, from 6.9 percent in 2015 to 6.5 percent in 2016. Among advanced economies, subdued growth prospects
reflect increased uncertainties. As a result, real output growth in the USA is projected to remain at 2.4 percent in 2016, as in 2015. Similarly, growth in Japan is projected to remain at 0.5 percent in 2016, as in 2015, reflecting a drop in private consumption.
In the United Kingdom,growth is expected to decline further from 2.2 percent in 2015 to 1.9 percent in 2016.
10. Mr. Speaker, Sir, low oil prices augur well for economic growth for oil importing developing countries like Malawi.
The modest growth in developed countries will spur real effective demand for exports.
The 2016/17 Budget framework takes this economic forecast into perspective.
Sub-Saharan Africa’s Economic Performance
11. Mr. Speaker, Sir, economic growth in the sub-Saharan African region slowed down to 3.4 percent in 2015, from 5.1 percent in 2014. This slowdown was
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primarily driven by the declining commodity prices, especially oil prices, as well as lower demand from China, which is the region’s largest trading partner.
12. Mr. Speaker, Sir, the region’s oil importers registered an average growth of 4.0 percent in 2015 and the majority of them will continue to experience solid growth in 2016. On the other hand, some of region’s low income countries generally continued to register commendable growth rates, although others faced challenges. For instance, the Democratic Republic of Congo, Ethiopia, Mozambique and Tanzania registered growth rates of at least 6 percent
in 2015, and were expected to sustain this in 2016. On the other hand, growth in Sierra Leone and Zambia slowed down to
less than 4 percent in 2015, on account of a slump in the prices of their main export commodities. Similarly, growth for South Africa, Malawi’s main import source, closed at below 1.5 percent in 2015, due to electricity load shedding and other supply side bottlenecks.
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13. In 2016, growth for the Sub-Saharan region is expected to remain weak at 3.0 percent, due to the continued slowdown in the global economy. However, it is projected to pick up to around 4 percent in 2017 on account of a mild expected rebound in oil and other commodity prices.
An improvement in the outlook for Ebola affected countries is expected also to support this growth.
Malawi’s Economic Performance
Mr Speaker, Sir, it is clear that, were it not for the adverse climatic episodes, the economy of Malawi would have performed much better. Instead. Malawi’s real GDP growth slowed down substantially from the rate of 6.2 percent registered in 2014 to 3.1 percent in 2015 due to the erratic weather conditions that disrupted the 2015 harvest.
The undesirable performance in the agricultural sector, which declined by 1.6 percent last year, adversely affected the
performance of other sectors of the economy, including wholesale and retail trade as well as manufacturing. However,
Malawi’s economic growth of 3.1 in 2015
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percent compares favourably with those of most countries in the SADC and COMESA regions. For instance, South Africa and
Zimbabwe only grew by 1.3 percent and 1.5 percent, respectively.
14. As a result of the slow growth,unstable macroeconomic conditions persisted in 2015, despite showing signs of
improvement relative to 2014. The annual average inflation rate for 2015 was at 21.8 percent, down from 23.8 per cent in 2014.
This reflected the combined effect of food scarcity, a higher level of liquidity in the economy, as well as the unexpected depreciation of the exchange rate during the tobacco season.The weakening of the Malawi kwacha against major trading currencies was occasioned by a general strengthening of the US dollar and speculation among currency traders on the local market. The Kwacha depreciated from K450 per US dollar in February 2015, to K765 per dollar a year later.
However,Honourable Members may wish to note that domestic currency depreciation was worse in other countries, including some within the region. For instance, the Zambia
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Kwacha depreciated by almost 90 percent between February 2015 and February 2016.
The South African Rand also depreciated from ZAR11.63 to ZAR15.76 during the same period.
15. Mr. Speaker, Sir, the economic slowdown in 2015 also had a negative impact on the national budget. At midyear, for instance, domestic revenue underperformed by 4.1 percent against the target of K312.4 billion. However,
Honourable Members should take note that the underperformance in revenue collection also reflects weaknesses in the tax
administration system which must be addressed.
I will revert to this point later.
16. Moving forward, Mr Speaker, Sir, as projected by the IMF, the Malawi economy is expected to rebound from the real GDP growth rate of 3.1 percent in 2016 to 5.1 percent in 2016. Although the economy has been depressed by the El Nino weather episode which particularly adversely affected smallholder agricultural production, commercial agriculture has registered an increase. Growth in 2016 has
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also been anchored by a good performance in the services sectors notably, the wholesale and retail trade sector, the
information and communication sector, and the financial and insurance services sector.
17. As Honourable Members are aware,Mr Speaker, Sir, Malawi’s inflation has decelerated to 20.9 percent in April 2016.
Strategic Policy Issues
18. Mr Speaker, Sir, allow me to draw the attention of the House to some of the key strategic policy issues which the house could focus on during the debate.
Climate Change Mitigation: Creation of the Greenbelt Authority
19.<b> Mr Speaker, Sir, the adversities of the last two growing seasons are more than enough demonstration that the effects of climate change are here to stay with us, and that there is need to adapt in the most comprehensive manner in order to effectively break the cycle of perpetual food insecurity in this country. For this reason, as His Excellency the State President
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emphasised in his opening speech for this seating of Parliament, the Government has resolved to intensify irrigation farming in order to transform the economy from the excessive dependence on rain-fed agriculture, as a lasting solution to the challenge of climate change. The move will also increase the number of harvests per year to more than the current single harvest.
This could substantially increase the country’s rate of economic growth.
20. Honourable Members of the House are invited to note that feasibility and technical studies for the Shire Valley
Irrigation Project are progressing well, and it is expected that the World Bank and the African Development Bank will soon be approving the financing for the project.
Once done, the implementation of this project will constitute one of the most transformative development projects in the country. Furthermore, it is also expected that the Bwanje Valley Irrigation Scheme that has been proposed to the Chinese Government for funding will be implemented in the foreseeable future. This is also true of the Songwe Valley Irrigation Project. Projects such as these will be open
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to large-scale farmers on terms and conditions that will be agreed with the Government.
21. Mr Speaker, Sir, to coordinate these and many other large-scale irrigation infrastructure projects that will be necessary to fully pursue this agenda of transformation, the Government has decided to formally establish the Greenbelt Authority (GBA) as a stand-alone public agency. The authority will be the official agent for the construction of these large scale irrigation infrastructural projects throughout the country in line with the
Government’s Irrigation Master plan, while small-scale irrigation projects will continue to be implemented by the Ministry of Agriculture, Irrigation and Water Development.
Accordingly, the Treasury has established Vote 078 to allocate resources for the administrative and operational
expenses of the authority with immediate effect. This will be part of the 2016/17 budget. The large-scale irrigation
infrastructure projects will be part of the Government’s development programme. The House will note, therefore, that the
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irrigation plans that were announced by His Excellency the President are scheduled to be implemented immediately.
22. Mr Speaker, Sir, the implementation of smallholder irrigations projects in the country will continue under the supervision of the Ministry of Agriculture, Irrigation and Water Development. The Government will continue to support winter cropping among these farmers, and will distribute subsidised fertilizers and treadle pumps.
However, Honourable Members will agree with me that this support has been provided to smallholder farmers over a long time now, and it will be important to evaluate performance. In this regard, the Ministry of Agriculture, Irrigation and Water Development will analyse these projects and determine how best they should be transformed in order to justify future allocation of public resources.
Addressing Food Insecurity
23. Mr Speaker, Sir, as I have already mentioned, Malawi is facing yet another wave of food insecurity, this time
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occasioned by the El Nino climatic episode.
The second round crop estimates recently released by the Ministry of Agriculture, Irrigation and Water Development showed that maize production during the 2015/16 growing season has declined by an estimated 12.4 percent relative to
production in 2014/15. Maize production has been estimated at 2.4 million metric tons before adjusting for post-harvest loses.
Importantly, it is estimated that the country requires an additional 790,000 metric tons of relief food to support an estimated 8.4 million people. An additional 250,000 metric tons is required for sale in ADMARC markets, while another 250,000 metric tons is required to restock the strategic grain reserves. The production of other food crops such as rice, wheat, sorghum and millet has also been generally poorer than last year. As a result of this adverse outturn, His
Excellency the State President, Professor Author Peter Mutharika, declared a State of National Disaster in Malawi on 12 April 2016 in order to mobilise local and international support to save the lives of the affected people. Apart from Malawi, El Nino has also created food shortages in several
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other countries in the Southern African region, notably Madagascar, South Africa and Zimbabwe.
24. Mr. Speaker, Sir, I wish to announce that the 2016/17 budget formally identifies Government intervention to the current food crisis as a key priority area. In this respect, the budget includes an allocation of K35.5 billion to the purchasing of food.
25. Mr. Speaker, Sir, our plans on how to address vulnerability to food shortages are normally based on estimates produced by the Malawi Vulnerability Assessment Committee (MVAC). My Ministry and our collaborating partners are currently preparing the MVAC Report to determine the exact size, needs and distributional characteristics of the needed food supplies to the people. Certainly, development partners’ responses to His Excellency’s declaration and call for assistance will depend on the MVAC estimates which will not be available until June 2016.
However, the Government has already started making some tentative plans so that action may proceed straight away, as has been done by
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other countries in the Southern African region that have also been affected by the drought. In this case, we have negotiated with large-scale farmers who have committed to produce maize for sale to the Government through winter cropping.
26. In addition, ADMARC has also been empowered to purchase local maize for immediate sales, a process which has already started and is progressing well. This support is typically provided through Government guarantees for ADMARC to
borrow from commercial banks to purchase food for sales to the public.
27. Honourable Members will appreciate that it is not possible for the Government to shoulder the full cost of the food shortage.
The U.K. and the ADB already pledged their support in response to His Excellency the President’s disaster call. The United States Government has already pledged support amounting to about US$63 million for humanitarian food assistance, which will be managed by the World Food Program (WFP).
The ADB has also pledged US$18 million.
Moreover, the assistance pledged by the
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Chinese Government (of over US$9 million) and by the Japanese Government of US$7 million is still available to support the current crisis. The IMF has also provided support amounting to US$49 million through the Augmentation of Access facility, which allows the Government to borrow more money from the Reserve Bank of Malawi specifically for this purpose. The World Bank currently conducting a post-disaster needs assessment in the country, to determine their level of support through the Crisis Response Window facility.
Honourable Members will further recall that this facility was used by the World Bank to provide support amounting to US$80 million in response to the flood disaster of 2014/15, and the Government anticipates that the World Bank will be equally supportive this year. Indications of more support are currently being firmed up by the British Government, the WFP and other donors.
With the support of the United Nations Development Programme and other development partners, an Emergency Response Plan has also already been developed.
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28. Mr. Speaker, Sir, as indicated, the sum of MK35.5 billion has been allocated for the procurement of maize in the 2016/17 budget. Of this amount, MK6.0 billion is in support of the winter cropping initiative to purchase maize from large scale farmers through contract farming.
The total allocation for maize procurement is additional to the supplemental resources that the Treasury continues to provide in the current fiscal year for immediate relief.
Apart from other forms of support that the Government is receiving in response to the food security challenge, the House will be pleased to note that development partners cooperating under the Multi-Donor Trust Fund in Agriculture have indicated that they may provide additional resources specifically in support of winter cropping.
Boosting Rural Incomes
29. Mr Speaker, Sir, in view of the fact that smallholder farmers in rural areas have had drastically reduced agricultural production due to the drought, it follows that their incomes have also been reduced at a time when they will need resources to
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purchase food. The budget for 2016/17 is a vehicle through which resources will be directed towards an enhanced Public Works Programme. In this regard, at least MK500 million will be made available to each district, from the resources provided by the European Union and the World Bank. Over and above the usual works traditionally carried out under the programme, such as the construction and rehabilitation of roads as well as afforestation, the Government plans that, where necessary, the enhanced Public Works Programme should be used to construct infrastructure facilities like
hospital wards in places where the need has arisen. Other facilities that may be constructed are guardian shelters in
hospitals and hostels at community day secondary schools. These projects will be constructed on a labour-intensive basis to benefit as many people as possible.
Reforming the Farm Input Subsidy Programme
30. Mr Speaker, Sir, the Farm Input Subsidy Programme (FISP) has been pivotal in the achievement of national food security
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during periods of good climatic conditions for agriculture. On the other hand, the implementation of FISP has generally been a fiscal challenge because of the associated exchange rate risk which has been wholly borne by the Government, leading to significant cost overruns every year. An additional challenge has been the targeting
mechanism. Various studies have revealed that only about 50 percent of the actual beneficiaries of the programme were eligible beneficiaries. Motivated by these challenges, the Ministry of Agriculture, Irrigation and Water Development
implemented pilot FISP reforms during the 2015/16 growing season, from which positive lessons have been drawn. There is
now need to make deeper structural and financial improvements to the system so as to improve its effectiveness and reduce costs.
31. Mr Speaker, Sir, in order to address the aforesaid FISP implementation challenges while ensuring that genuine beneficiaries of the programme continue to receive support, I am pleased to inform the House that the
Government instituted some reforms in the
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implementation of FISP. In particular, from the next growing season, the majority of districts that are easily reachable will be served by private sector fertilizer retailers.
Those that are not accessible will continue to be served by the Smallholder Farmers Fertilizer Revolving Fund of Malawi and ADMARC.
32. In view of the fact that during the past ten years the number of poor people has declined significantly, scope of the programme will be reduced to 900,000 beneficiaries instead of the traditional 1,500,000.The House will be pleased to note that the programme will continue to supply Urea and NPK fertilizers for maize. Some 60 percent of the volumes will be imported by private traders and sold directly to farmers, while the remaining 40 percent will be implemented through the Smallholder Framers Fertiliser Revolving Fund of Malawi, with support from ADMARC.
33. The private participants in the programme will be chosen by tender and given licences by the Ministry of Agriculture, Irrigation and Water Development to trade
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in designated districts.The involvement of the public institutionsis very important in ensuring that hard-to-reach parts of the country are served. Mr Speaker, Sir, one of our lessons from the pilot FISP reform of
last year was that the private sector can withdraw and frustrate the programme at a crucial stage during the agriculture season.
In such eventualities, it is crucial for public institutions to take over supply in the affected districts.
34. The two public institutions will be expected to procure fertilizers directly from manufacturers. They will therefore issue tenders internationally and will also be supervised by the Ministry of Agriculture Irrigation and Water Development.
Moreover, the Government will provide coupons with a stated value per bag of fertilise or pack of seed, while farmers will be required to pay the difference between the market price and the coupon value to the Treasury. Programme funding will be based on actual coupons presented by suppliers. In this way, the Government will no longer be responsible for exchange rate variations.
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35. Mr Speaker, Sir, let me also inform the house that subsidised legume seed will also be provided under the programme in the next growing season and the Government would like to encourage farmers to grow as many legumes as possible, because of the multiple advantages of these crops. First, legume production is very rewarding to farmers.
Prices as high as K600 per kilogram have been realised by farmers this year, while the input and labour requirements for these crops are characteristically lower than those of other crops. Second, legumes have a ready international market, especially India, such that they have huge potential to resolve our foreign exchange challenges.
Finally, legume production is extremely useful for restoring soil fertility and lowering the demand for fertiliser use. The Ministry of Industry, Trade and Tourism will be responsible for organising the marketing of legumes domestically and overseas, and, together with the Treasury and the Reserve Bank of Malawi, they will ensure that the
foreign exchange earned flows back into Malawi.
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Strengthening National Development Planning
36. Mr Speaker, Sir, you will recall that, in my 2015/16 Budget Statement presented in this very House, I indicated that the Government was planning to establish a national planning commission as an independent body for strategic thinking on matters of national development. I am pleased to report that significant work has been done to achieve this objective, and it is proposed that the commission be called the National Development Planning Commission. The work done by my ministry has determined that there is need to establish the commission through both a Constitutional provision and a separate law.
To this effect, I will soon be introducing two bills on this matter in this House. I request the Honourable Members to support this important initiate in order to ensure that the implementation of our national development agenda is informed by comprehensive expert analysis and sustainably insulated from political change.
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National Registration
37. Mr Speaker, Sir, previous Governments have not taken firm steps to introduce the national identity card, despite the enormous merits of doing so.
Notwithstanding the resource constraints that we face, this investment cannot be delayed any further, especially in view of the need to ensure that the card should be useful during the 2019 national elections.
In particular, the investment will serve the Government a significant amount of money that would otherwise be required for voter registration for the elections, while permitting the use of the card for many other important purposes such as the registration of civil servants to avoid the recurrence of “ghost workers”, identification of beneficiaries in the various subsidy, cash transfer and loan programmes, and well as screening individuals’ access to public services. Accordingly, the Government has resolved to proceed to rollout the national identity card in collaboration with
development partners. In order to ensure that the card can optimally serve multiple purposes, a decision has been made to
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invest in the best chip-based and durable technology. The total budget for the National Identity Cards Project is estimated at US$51.2 million, almost 70 percent of which is required within the next two fiscal years (that is, in 2016/17 and 2017/18). I am pleased to inform the House that an allocation has been made to support this effort in the 2016/17 budget, and the Government is negotiating with its Development partners to supplement the resources under a cost-sharing arrangement.
Public Finance Management Reforms
38. Mr Speaker, Sir, I now turn to the subject of public finance management reforms. Various commentators, including the IMF, have admitted that we have made significant progress over the past year in
strengthening the country’s public finance management system, although we recognise that more still needs to be done. To mention a few areas, we have now strengthened the functionality of the Integrated Financial Management Information System (IFMIS)through equipment enhancements and the
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incorporation of key accounts into it. We have also progressed on the procurement of new software, for which adequate funding has now been identified. Honourable Members will be pleased to know that we have also completed our work on the
reconciliation of the backlog of transactions running up to June 2015. The National Audit Office is following up on these itemsfor the backlog up to December 2014, including the stock of K577 billion worth of unreconciled items that have been thesubject of an ongoing public debate.
The backlog for January to June 2015 is being tracked by the Central Internal Audit Unit.
Moreover, since July 2015, we have established a system that allows some of the reconciliations to be carried out by
ministries, departments and agencies, and that ensures that we do not generate another backlog of unreconciled items. The IMF is closely monitoring this process.
39. Further to this, Mr Speaker, Sir, we have now submitted all financial statements up to the 2014/15 financial year to the Auditor General, and have submitted a Treasury Minute to the Public Account
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Committee to indicate the status of the Treasury’s follow-up on prior audit findings and the responses provided by controlling officers. We have also successfully conducted two tailor-made courses on fiscal management at the Malawi Institute of Management (MIM), attended by controlling officers, chief directors and other keyfinance and audit officials.
The aim of these courses was to raise the levels of awareness of and compliance with the financial rules and regulations. Significant amounts of technical assistance and training have also been directed towards the Accountant
General’s Department and the Central Internal Audit Unit.
40. Finally on the issue of financial management, Mr Speaker, Sir, there have been frequent complaints about funding
from various quarters. I wish to inform the House that we have had discussions with controlling officers on the matter, and it is clear that most of the concerns are managerial rather than being due to the absence of funding. In some cases, for instance, officers have expected to be funded according to the budgets that they
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initially submitted to the Treasury, instead of what was approved by Parliament.
Therefore, I wish to advise Honourable Members against supporting these complaints without first asking for full
information. Instead, Members should be interested in establishing how the available resources are being managed within the Government.
Programme Based Budgeting
41. Mr Speaker, Sir, in our quest to integrate planning with budgeting, the budgeting approach is undergoing an improvement to strengthen the link between resource allocations and results for ministries and departments.
The approach provides a framework for performance measurement through defined targets on specified programme deliverables in a transparent and accountable manner. The approach also allows Parliament to carry out its oversight function more efficiently,since resources are tied to specific results that can be tracked.
Furthermore, it is our anticipation that improved budget scrutiny by the various stakeholders will help in
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budget implementation as controlling officers will be held more accountable for resources provided.
42. Mr Speaker, Sir, Programme-Based Budgeting was being piloted over the past two financial years, and is now ready to be rolled out to all ministries and departments.
The roll-out will be completed in due course when the reform will be extended to agencies. In order to ensure a seamless transition from the previous Output-Based Budgeting, officials from my ministry have held extensive workshops with all key stakeholders to introduce the concept of Programme-Based Budgeting.
These stakeholders include finance officers from the various MDAs, controlling officers, and some among yourselves, Honourable Members.
I am aware that Honourable Members of the Budget and Finance Committee and the Public Accounts Committee, as well as chairpersons of all other committees of Parliament have attended these workshops. I would like to take this opportunity to thank the Honourable Members for their clear support for this reform.
My Ministry stands ready to
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respond to any issues that may arise in this regard specifically, and throughout this budgetsitting of Parliament generally.
Performance of the 2015/16 Budget
43. Mr Speaker, Sir, let me now briefly discuss the performance of the budget for the current financial year. At this point, I invite members to refer to the new Programme-Based Budget Document that shows detailed performance by each vote.
As Honourable Members will recall, total expenditure and net lending in the 2015/16 budget was initially set at K923.8 billion excluding expenditures under the Malawi Rural Electrification Project (MAREP).
This figure was revised downwards at mid-term to K902.3 billion when the memorandum item is excluded, and to K917.2 billion inclusive of this memorandum item. Given the need to procure food items for immediate relief, the revised amount may be adjusted upwards to the extent of this expenditure. However, the figure of total revenue and grants was revised upwards from K763.5 billion to K784.8 billion at midyear.
This was on account of a projected
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increase in grants of K33.8 billion from K97.1 billion to K130.9 billion, while domestic revenuewas projected to decline from K666.3 billion to K653.9 billion, to the astonishment of both the Treasury and the IMF. As explained during the mid-term review, the revised budget was formulated to respond to the projected shortfall in domestic revenue. The performance of revenue has not improved since.
44. Honourable Members will be pleased to note that, unlike last year when the wage bill exerted pressure due to the recruitment of teachers, it has been kept under control this year and the revised figure of K222.3 billion for personal emoluments will hold to the end of the financial year.
The implementation of payroll administration measures, as well as a scale down in the recruitment of mostly non-essential staff, have been jointly central to this out turn.
The removal of suspected “ghost workers” from the payroll after the recent headcount has also assisted to reduce the wage bill.
Similarly, it is expected that the provision for interest on debt will be within the revised figure of K116.2 billion.
45. Mr. Speaker, Sir, other recurrent expenditures are projected to increase from the approved K350.0 billion to
K365.6 billion, notably because expenditure on FISP increased from 41.5billion to K63.9 billion. This was due
to the exchange rate depreciation experienced during the year.
This is one of the reasons why drastic FISP reforms will be implemented during next year’s budget.
46. Mr Speaker, Sir, the out turn suggests that the overall deficit of K138.2 billion in 2015/16 is projected to be lower than in the approved budget by about K28 billion. Moreover, Honourable Members may wish to note that, at 3.9 percent of GDP, the deficit is depicting a declining trend, from 6.2 percent of GDP in 2013/14. Equally, the domestic debt stock hasdeclined as a percentage of GDP from 19.5 percent in the 2013/14 to 14.0 percentby the end of December 2014/15.
This is an excellent result of fiscal operations which, if sustained, would bring the domestic debt stock toless than
12.5 percent of GDP, which is the internationally accepted threshold.
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47. To relate these financial developments to real budgetary outcomes, Honourable Members are,once again, encouraged to consult the relevant documents that adequately cover this material. In particular, the attention of the House is once again drawn to the newly introduced Programme-Based Budget Document, which is marked as Volume IV. This document does not only provide the outcome of the Budget in figures, but also contains details of the actual performance of the programmes being implemented by ministries or departments for which these expenditures were incurred.
The 2016/17 Draft Budget
48. Mr. Speaker, Sir, before I go further in discussing the proposed 2016/17 budget, I wish to explain the factors and priorities that have been taken into account in the preparation of this budget. Firstly, Mr. Speaker Sir, the proposed budget reflects the agreements made between the Government and the IMF within the context of the seventh and
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eighth reviews of the Extended Credit Facility arrangement. Most importantly, while the budget seeks to sustain efforts
to achieve macroeconomic stability, it also allows for a level of net domestic financing (or borrowing) that permits the Government to respond to the food insecurity crisis occasioned by the El Nino climatic episode that the country
has undergone.
As such, year-end net domestic financing (NDF) in 2016/17 is set at MK60 billion, compared with the lower limit of MK25 billion set in the 2015/16 budget. Further, the lower limit for the current fiscal year has also been relaxed to finance immediate food purchases.
49. Secondly Mr. Speaker, Sir, the proposed budget is based on several assumptions regarding the
macroeconomic outlook for the next financial year.Projected real GDP growth is at 5.1 percent while nominal GDP will
grow by 24.0 percent.
Moreover, we project that the average inflation rate in 2016/17 will be 17.4. These assumptions have been agreed with the IMF.
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50. Thirdly, Mr Speaker, Sir, the proposed budget has been based on the Government’s short and medium-term policy priorities as outlined in the 2016/17 Economic and Fiscal Policy Statement. These priorities are equally motivated by the objective of ensuring that the country maintains a program with the IMF, while addressing some
pressing socio-economic challenges that are evident. Therefore, the budget seeks to:
a. increase domestic resource mobilization so that tax revenue in tandem with the rate of growth in nominal GDP. The IMF hold the view that other similarly placed countries have achieved such a target;
b. ensure that adequate resources are allocated to enable maize procurement, and to support irrigation farming;
c. ensure that the wage bill is maintained below 7 percent of
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nominal GDP, while allowing the critical recruitment of teachers, doctors, nurses and security officers, as well asa modest salary increase for lower grades of the Civil Service; and
d. ensure that resource allocations to the health, education and other critical social sectors remain adequate and a significant proportion of the budget.
51. In order that the economy resumes robust growth rates, it is important that everybody be accustomed to modest salary level as was the case for a long time after independence. The results then were high national savings,
and investment ratios and discernible growth rates.
52. As I have explained, the Government, with support from various development partners, is working tirelessly to put in place a robust financial management system. It is expected that the European Union and the World Bank
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will resume general Budget support during the course of the 2016/17 fiscal year. Such resources will be applied
towards critical activities that the proposed budget is unable to include. We undertake to revert to Parliament with the proposed utilization of any additional budgetary resources that may become available in the course of the fiscal year.
As His Excellency the President has repeatedly said, it is important for Malawians to recognize that budget support from bilateral donors is unlikely to resume. We must learn to manage our affairs within the available resources.
This is not the time to expect large yearly salary increments from the Government.
Our efforts to strengthen the PFM system are motivated to ensure that public money is used according to what it is
intended and productively so as to improve the lives of Malawians.
53. Mr. Speaker, Sir,> we shall be distributing the necessary Budget documentation, including the new
Programmed-based Budget Document immediately today.
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54. And now Mr. Speaker, Sir, let me present the 2016/17 budget. Total revenue and grants during the 2016/17 fiscal year are estimated atK965.2 billion or 22.2 percent of nominal GDP. Of this amount, some K708.8billion will be tax
revenue, K66.0 billion will be non-tax revenue,while K190.4billion will be grants from our cooperating partners. Thus,
MK774.8 billion or 80.3 percent of these resources will be domestically generated, while the remaining 19.7 percent will represent donor grants.
Compared with the 2015/16 revised budget, tax revenues are projected to increase by 21.8 percent, reflecting the fact that nominal GDP, which is the base for most of the taxes, will grow by 24.0 percent. Tax on income and profits will account for 55.4 percent of total tax revenue, while tax on goods and services will generate 37.2 percent.
On the other hand, non-tax revenue is shown to be lower relative to the 2015/16 revised budget estimate of K71.9 billion, because the 2016/17 figure excludes the rural electrification levy which funds MAREP, estimated at K13.5 billion in 2015/16.
Moreover, it is projected that
[PAGE 42
the benefits of the anticipated implementation of the newly formulated Dividend and Surplus Policy will occur with a lag. The key non-tax revenue sources will be fuel levies, parastatal dividends and departmental receipts.
55. Mr Speaker, Sir, as I indicated, the estimate for tax revenue, as projected by the IMF, is higher than what was suggested by the Malawi Revenue Authority (MRA), which was about MK698.0 billion.
In my view, although planning on the basis of the optimistic IMF projection could create the risk of a higher domestic financing outturn in the event of a shortfall in actual collections, it seems prudent to argue that MRA has the
capability to collect more revenue than it currently does as a proportion of GDP.
MRA is, therefore, being requested to rise to the needs of the country at this crucial moment when the enhancement of
domestic resource mobilization is critical for the attainment of our national priorities.
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56. Overall, at MK190.4 billion or 4.4 percent of GDP, there is a 45.5 percent increase in grants compared with the
2015/16 revised budget provision of K130.9 billion. This is due to a high rise in project grants that have been pledged, particularly by the EU. Moreover, the House may wish to recall that, during his recent visit,a grant worth US$18 million, which is approximately equivalent to MK13.6 billion. This projection for program grants represents a 33.8 percent decline over the projection made for 2015/16 of MK20.5 billion.
The World Bank and the European Union may also provide budget support once they finalize their own evaluations of the public finance and economic management framework during the course of the calendar year.
The House is informed that the pending budgetary support amounts from the two multilateral donors are being treated as
memorandum items which, once they materialize, will be used to fund specific expenditure items.
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57. Turning to total expenditure and net lending during 2016/17, Mr. Speaker, Sir, this is projected to be MK1136.4billion or 26.1 percent of nominal GDP. This represents an increase of 23.9 percent over the 2015/16
revised expenditure. Of this amount, recurrent expenditure will be MK815.5 billion or 18.7 percent of GDP, which is
higher than the 2015/16 allocation by 16.8 percent.
Moreover development expenditure will increase by 57.0 percent from MK217.5 billion to MK317.4 billion, or 7.3 percent of GDP. Up to K279.8 billion or 82.2 percent of the development budget will be provided by development partners through loans and grants, while local resources will account for the balance of K37.6 billion or 11.8 percent.
Therefore, the donor contribution to the development programme is anticipated to increase by 62.0 percent relative to
2015/16. Importantly, Honourable Members should note that the development expenditure provision constitutes 27.9 percent of the budget and is higher than the 25 percent that is the internationally accepted threshold.
[PAGE 45]
is also in excess of the estimated wage bill of K264.4 billion. Therefore, the proposed budget is optimally “developmental” using both criteria.
58. The House’s attention is also drawn to the fact that some further resources are available from the unused proceeds of project loans. Net of loan amortisation, we plan to draw K111.2 billion for expenditure on projects for which the
money is in the total resources available within the expenditure figure. The total available resources therefore amount to K1,086 billion.
59. In addition, Mr Speaker, Sir, the sum of MK3.5 billion has been set aside as net lending. Of this amount, MK3.0 billion will support university students with loans administered by the Higher Education Students' Loans and Grants Board, representing an increase of 100 percent from the MK1.5 billion provided in 2016/16. The balance of MK500 million in net lending will be allocated to the councillors’ motor cycle loan facility.
[PAGE 46]
60. In terms of direct allocations to key line ministries, Mr Speaker, Sir, the amount of K198.5 billion has been allocated to the Ministry of Agriculture, Irrigation and Water Development; K147.6 billion to the Ministry of
Education, Science and Technology; and K95.8 billion to the Ministry of Health. All these key vote allocations represent increases relative to the revised expenditures for 2015/16. Moreover, Mr Speaker, Sir, Honourable Members are reminded that these allocations exclude the sums that will be spent through local
councils and subvented organisations in these sectors.
They also exclude donor support outside the budget. As demonstrated in the Annual Economic Report which will be presented as part of the budget documentation, the allocations to the social sectors have generally increased.
61. Mr Speaker, Sir, allow me to indicate that some K530.5 billion or 46.7percent of the proposed total
expenditure and net lending amount of K1,136.4 billion constitutes statutory
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expenditures. These are expenditures which the Government is legally prohibited from postponing each year,
mostly dominated by wages and salaries, pensions and gratuities, and debt servicing costs. Therefore, Honourable
Members should be aware that there is very limited room for meeting our non-statutory recurrent and development
needs in the coming year. This is a very important factor that should be considered in analysing the allocations.
Most importantly, the fact that the budget is getting smaller and smaller than government needs every year creates a
fundamental need for the prioritisation of Government operations to ensure that only essential and affordable operations may be financed. I believe that this is the opportune time to seriously review Government functions with a view to streamlining operations within the available resources, in order to deliver better quality public services on a
sustainable basis.
[PAGE 48]
62. At this point, let me emphasise, Mr Speaker, Sir, the importance of prudence by controlling officers in the implementation of the budget. Given that significant resources will be allocated towards the purchase of maize during the next fiscal year, and in view of the constrained space for non-statutory expenditures, it is important that
ministries, departments and agencies must be prepared for diminished resources in real terms. This is particularly so in terms of allocations for other recurrent expenditures.

Nonetheless, it is the expectation of the
Government that MDAs will plan their
programmes and activities within the
available resources, and that they will
neither over-commit nor create
unauthorized arrears.
63. Compared with the estimated
revenue and grants position of MK965.2
billion, Mr Speaker, Sir, the proposed
total expenditure and net lending of
MK1,136.4 billion implies a projected
overall negative fiscal balanceof MK171.2
billion, which represents 3.9 percent of
GDP. The deficit will be financed through
net foreign loans worth MK111.2 billion
and net domestic financing of MK60
billion. As indicated, the domestic
borrowing target has already been agreed
with the IMF.
Highlights of the 2016/17 Recurrent
64. Mr. Speaker, Sir, in terms of key
recurrent expenditure items, the House is
invited to note several highlights of the
proposed Budget. To begin with, due to
the increase in the stock of public debt,
we have projected an increase in public
debt charges from MK116.2 billion in
2015/16 to MK143.5 billion in 2016/17.
This increase is a key limitation to the
availability of resources for actual
expenditure on goods and services.
Nonetheless, the House will be pleased to
note that the interest payment on public
debt is projected to remain stable at
around 3.3 percent of GDP, which is very
small compared with the internationally
acceptable threshold of 10 percent.
Thus, overall, we remain among the least
public debt encumbered countries.
65. Secondly, Mr. Speaker, Sir, as
already intimated, the wage bill in
2016/17 is projected at MK264.4 billion,
representing 6.1 percent of nominal GDP
and 23.3 percent of total expenditure and
net lending. This is very much in line with
the international best practice which
requires that the wage bill should be kept
below 7 percent of GDP and below the
level of development expenditure. The
House is invited to note that there will be
an average salary adjustment of about15
percent in the year,but this will only
targetthe lower grades of the Civil Service.
Moreover, the recruitment freeze in the
Government shall remain in force,except
for the recruitment of an estimated
10,500 primary school teaches and 477
secondary school teachers. This
recruitment of teachers was postponed in
the 2015/16 fiscal year, although most of
the processes were already concluded.
Mild recruitments in the health and
agriculture sectors (particularly of
extension service workers) have been
considered to avoid the disruption of
frontline service delivery. Another
recruitment priority area that has been
considered is that of security institutions,
particularly the Malawi Police Service and
the Malawi Defence Force, to ensure that
security is not compromised.
66. Mr Speaker, Sir, I have also
already indicated the depth of the FISP
reforms that the Government will
implement during the coming financial
year. From a Treasury perspective, let me
emphasise that it is critical to fix the
coupon value while allowing the farmer
contribution to vary according to market
trends. With the totality of the reforms in
mind, the 2016/17 FISP has been
allocated the sum of MK31.4 billion. This
is a significant reduction from the
2015/16 revised budget allocation of
K63.9 billion. Honourable Members will
be pleased to note that there are further
indications that development partners
collaborating under the Multi-Donor
Trust Fund in Agriculture may also
provide resources specifically in support
of the seed component of the reformed
67. Mr Speaker, Sir, the 2016/17
budget also makes a provision of K50.2
billion for the payment of pensions and
gratuities. This is only adequate to
sustain payments under the existing
Government Pension Scheme because of
our inability to migrate to the National
Pension Scheme due to resource
limitations. Moreover, the sum of MK5.2
billion has been allocated to the National
Identity Cards Project, representing an
estimated 40 percent of the Government
Contribution to the project for the year.
Negotiations are underway between the
Government and development partners to
lower the Government share of the total
cost, and the Government offers to ringfence
its contribution in the budget. In
addition to this provision, the sum of
MK780 million has been allocated to the
National Registration Bureau for
operating expenses.
68. As for road maintenance and
rehabilitation, Mr Speaker, Sir, the sum
of MK20.6 billion has been allocated
towards this important activity. Of this,
some MK8.0 billion has been earmarked
for selected roads in thefour major
cities.The cities of Blantyre and Lilongwe
have been allocated MK2.5 billon each,
while Mzuzu and Zombahave been
allocated MK2 billion and K1 billion,
Highlights of the 2016/17
Development Budget
69. Mr Speaker, Sir, the development
budget allocation of MK317.4 billion
covers many projects that will be
implemented across the public sector.
While there are many small development
projects included, Honourable Members
are invited to note some of highlights of
the proposed development budget, as I
now present them
70. In Agriculture, Irrigation Water
Development, a total of MK 117.5 billion
has been allocated to various projects.
Of this amount, MK115.9 billion will
come from development partners, while
MK1.6 billion will constitute local
resources. The key projects included are
the Shire River Basin Management
Project, the Agriculture Sector-wide
Approach Support Project, the
Smallholder Irrigation and Value Addition
Project, the Rural Irrigation Development
Programme, and the Smallholder
Agriculture Infrastructure Support
71. Excluding resources provided
through subvented organizations, Mr
Speaker, Sir, a total of MK22.3 billion has
been allocated to various projects in
Education, Science and Technology,
consisting of MK19.7 billion in donor
funds and MK2.6 billion in local
resources. The funds are directed
towards key activities including the
rehabilitation of conventional secondary
Schools, construction of teacher training
colleges, construction and expansion of
selected community day and conventional
secondary schools,expansion and
rehabilitation of public universities and
establishment of Mombera University.
72. Mr. Speaker, Sir, a total of
MK35.9 billion has been allocated for
road construction, consisting of MK28.7
billion in donor funds and MK7.1 billion
in local resources. As indicated by His
Excellency the State President, some of
the roads under consideration are
Chitakale Road, Jenda-Edingeni Road,
Chiringa-MiseuFolo-Chiradzulu Road
and Lumbadzi-Dowa-Chezi Road. While
these are the clear priorities of the
Government, consideration will also be
made of Thabwa Road,Nacala Corridor,
Mzuzu-Nkhata-Bay Road, Livingstonia-
Njakwa Road, Old Lilongwe Airport-
Kasiya Road, as well as design study of
Mthuthama Road andRumphi-Nyika
73. In Transport and Public Works,
Mr Speaker, Sir, an amount of MK34.1
billion has been allocated for development
projects, of which MK32.4 billion will be
from donors under the Trade Facilitation
Project and for airport equipment
upgrading. Among the notable projects as
mentioned by His Excellency the
President is the commencement of
Chileka Airport, the rehabilitation of
Mzuzu Airport, and the possible design of
the new Mzuzu Airport.
74. An allocation of MK12 billion will
be made towards health sector projects.
Resources have been provided for
Phalombe Hospital and the Lilongwe
Cancer Centre, among other health sector
projects. Moreover, in the Natural
Resources, Energy and Mining sector, the
total development budget allocation is
MK13.1 billion. This will almost entirely
come from donors, and will be provided
for the Energy Sector Support Project and
the Mining Governance and Growth
Support Project.
75. Mr Speaker, Sir, the sum of MK3
billion out of the local resources has been
set aside for district council development
project initiatives, to support Councilors’
efforts to develop their respective local
areas. These resources will complement
the Constituency Development Fund
(CDF) which is managed by respective
Members of Parliament. An additional
amount of MK1.5 billion has been
allocated towards the construction of the
Commercial Court. This project stalled on
account of arrears owed to the contractor.
The matter has been resolved and the
allocated amount should finance the
completion of the project. This project is
fully locally funded. In addition, the sum
of MK1.6 billion has been allocated to
projects under the Community Colleges
Programme, in addition to an amount of
about MK650 million for programme
operations. Further, the European Union
will support technical and vocational
training under a new six-year programme
that will be funded under the 11th
European Development Fund (EDF)
through which €540 million will be
allocated to Malawi.
76. Therefore, Mr Speaker, Sir, while
appreciating the continued on-budget
and off-budget support that both the
World Bank and the EU provide to this
country, it is our hope that these
development partners will come forth to
assist us with the budgetary support that
would permit the country to meet many
outstanding yet very crucial expenditure
Tax Policy and Administrative
Measures for the 2016/17 Budget
77. Mr. Speakers, Sir, I now turn to the
tax policy and administrative measures
that will support domestic resource
mobilization for the 2016/17 budget.
From the outset, let me reiterate that,
once again this year, we are expected to
generate adequate local resources to
finance more than 80 percent of our
activities due to the absence of
predictable budgetary support.
Consequently, the tax measures that I
shall be announcing will concentrate on
broadening the tax base, improving tax
administration, removing economic
distortions to spur production, and
encouraging tax compliance to generate
more domestic resources.
Comprehensive Review of the Tax
78. Mr. Speaker, Sir, as Honourable
Members may recall, last year I
announced that we had suspended
undertaking a comprehensive review of
the tax system due to the unprecedented
natural calamities of floods which were
followed by drought. I wish to inform the
House that we have commenced the
review of our tax system this year with
technical assistance from our cooperating
partners, notably the IMF and GIZ. The
IMF were in the country in January 2016
to undertake a scoping study of our tax
system. Some of the tax policy changes
that I shall be announcing today have
benefited from the input that we received
from our cooperating partners. Let me
further inform the House that the
comprehensive tax review aims at
creating a simple, efficient, transparent
and fair tax system through tax base
broadening; rationalizing the taxation of
international investment to ensure
competitiveness while preventing base
erosion; integrating tax policy with
national development strategies;
streamlining tax incentives; modernizing
and stabilizing the current tax legislation,
as well as eliminating obsolete and
contradictory measures to provide
taxpayer certainty, among other
79. Mr. Speaker, Sir, it should be
noted that the Customs and Excise tax
measures that I will announce today will
be effective from midnight tonight,
whereas the VAT and Income Tax
measures will be effective on 1st July
2016, once the relevant bills are passed
by this House.
Value Added Tax Measures
80. Mr. Speaker, Sir, over the last
decade, 32 African counties have
introduced Value Added Tax (VAT) as
their main broad-based consumption tax.
Malawi introduced VAT in August, 2005.
SADC member states are developing
guidelines for VAT’s best practices. VAT
has therefore gained popularity because
it is considered to be a revenue-efficient
tax with a self-policing mechanism
through the credit method - where one’s
input-tax is another’s output-tax. Some
scholars have termed VAT as the
workhorse for governments in domestic
resource mobilization. The January 2016
review of the Malawi tax policy conducted
by the IMF has strongly recommended a
shift in the reliance of domestic revenue
from taxes that fall on labour and
investment to taxes that fall mainly on
consumption. VAT is one such
consumption tax and SADC has also
made a similar recommendation for its
Member States.
81. Mr. Speaker, Sir, Malawi’s VAT,
unfortunately, has failed to live up to the
expectations of being a productive, stable
and efficient source of government
revenue since it was introduced, on
account of many reasons. One of the
reasons is that VAT has been used in
Malawi as a social security tool through
the introduction of numerous exemptions
and zero-ratings on goods and services
deemed to be used by low income earners
in society.
82. The numerous exemptions and
zero-ratings on goods and services have
not only eroded the tax base and
compromised revenue generation
capabilities, but they have also acted as a
subsidy to consumers who have
purchased the zero-rated goods and
services. Due to our inability to ring-fence
goods such as laundry soap, the higher
income earners have also had access to
zero-rated goods. Effectively, low income
earners have subsidized high income
earners. The fallacy of exemptions and
zero-ratings is that the exempted or zerorated
product or service is not really
cheap as, in the case of exemptions,
exempted goods or service will always
come with VAT that is not claimable and
ends up being passed on to the final
consumer. In the case of zero-rated
goods, delays in refunds act as a tax on
the supplier of the product who may have
to borrow money to pay for VAT and has
to wait for months to get a refund.
Effectively, suppliers of zero-rated
products load the costs of delay in getting
refunds in the prices of their goods or
services, which erodes the subsidy effect.
83. Mr. Speaker, Sir, in order to
address this challenge, Government is
introducing the standard VAT rate of 16.5
percent on a number of products which
are currently zero-rated or exempted.
This measures will expand the tax base,
restore the integrity of the tax system by
removing distortions that favour some
products against others, and remove the
causes of high refund bills that MRA is
sometimes not even able to honour.
84. Mr. Speaker, Sir, one of the areas
that is gaining prominence in Malawi is
the mining sector, as evidenced from the
growing exploration appetite and the
increase in the number of exclusive
prospecting licenses awarded to
date.Currently the VAT rules and
regulations do not allow a person who is
engaged in mining exploration to be
registered for VAT. A person is eligible for
VAT registration only when he has begun
to supply taxable goods or services.
85. Mr. Speaker, Sir, as you are
aware, it takes time for a mine to be
operational and during exploration
phase, a miner (prospector) will have
incurred VAT which he is not able to
claim because he is not registered for
VAT. To address this problem, which has
acted as a disincentive for investors, we
propose amending the VAT Act to allow
the mineral exploration phase to be
eligible for VAT registration and,
therefore, qualify for VAT claims. This
measure will not only relieve a VAT cash
flow burden on miners, but will also act
as an incentive in the mining sector and
this is likely to spur the mining industry
to greater heights.
Customs and Excise Act Amendments
86. Mr. Speaker, Sir, there are
numerous amendments to the Customs
and Excise Regulations which will appear
in the Government Notice to be published
in support of the 2016/17 Budget. I do
not intend to list down these changes to
the Customs and Excise Regulations. The
Commissioner General of the Malawi
Revenue Authority will publish these
changes through public notices after the
changes have been gazetted.
Let me appeal to members of the public to
follow-up these changes by logging in
MRA’s website, or by requesting for copies
of the changes from MRA’s corporate
office, or by reading in the local
newspapers, or even by obtaining copies
of the notices from the Government
Amendment to Customs Procedure
Code 445
87. Mr. Speaker, Sir, under the
Customs and Excise (Tariffs) Order, the
Government has created special
transactions called Customs Procedure
Codes (CPC) which allow dutiable goods
to be cleared duty-free because of
bilateral and multilateral agreements,
such as the Vienna Convention. CPC 445
covers Agreements with other
governments, organization, institutions
or persons.The total revenue foregone
under this CPC has averaged 0.27
percent of the GDP over the years. From
midnight tonight, CPC445 is amended to
cover agreements with other
governments, multilateral organizations
and only those industries designed as
priority industries.
Removal of Customs Duty on Power
Voltage Regulators
88. Mr. Speaker, Sir, Government has
embarked on the diversification of
sources of energy from hydro-power to
solar, biogas, and wind, among others.
In order to support investment in solar
renewable energy supplies, the 5
percentimport duty on power voltage
regulators has been removed. Let me
hasten to state that, with this measure,
all duties on solar gadgets will have been
Removal of Import Duty on Surgical
89. Mr. Speaker, Sir, surgical gloves
are very important in hospitals, especially
when performing an operation on a
patient. For this reason, and to align with
the COMESA external tariff, the 10
percent import duty on surgical gloves is
hereby removed.
Customs and Excise Bill
90. Mr. Speaker, Sir, I will now
mention briefly the Customs and Excise
Act amendments that will be presented in
this House in the form of a bill. Firstly, as
Honourable Members are aware, the
Government has allowed the private
sector to be licensed as Customs Agents
to transact business with the MRA on
behalf of the importing or, exporting
community. Mr. Speaker, Sir, I shall be
presenting a bill to this House to allow the
Commissioner General of the Malawi
Revenue Authority to suspend or issue an
administrative penalty to a Customs
Agent who has violated any conditions
attached to his license. The
Commissioner General, may, depending
on the gravity of the offence, even revoke
a license, especially where it has been
established that such an agent has
deliberately violated the conditions
attached to his license.
91. Secondly, Mr. Speaker, Sir, in a
bid to encourage compliance with excise
tax provisions, operators licensed under
the excise regime shall be subjected to
distraint or garnishment where it has
been proved that all actions to recover
money properly due to Government have
failed to yield positive results. Garnish
orders or distraint actions are provided
for under the VAT and Taxation Acts. The
bill that will be presented to this House
will seek to extend distraint action or
garnish order to be applied to excise
licensed operators to enforce compliance.
92. Thirdly, Mr. Speaker, Sir, the
Malawi Revenue Authority accepts
payment of income tax using personal
cheques in order to encourage
compliance and to reduce cost of doing
business in Malawi. The same facility has
been applied for the settlement ofcustoms
and excise liabilities. Unfortunately, some
tax payers have abused this positive
gesture from MRA. In order to reduce the
costs of collecting moneys from
dishonoured cheques and also to pay for
the value of money, Mr. Speaker, Sir, I
shall be presenting a bill that will levy a
30% penalty of the amount on the cheque
that has been returned by the bank.
This penalty will be additional liability to
the full taxes or duties due.
93. Mr. Speaker, Sir, prior to 2014,
the Malawi Excise tax regime had a two
tier structure that provided a lower excise
rate for locally manufactured cigarettes.
The objective of this two tier structure
was to encourage local production of
cigarettes with its attendant advantages
of value addition, job creation, export
diversification and foreign exchange
earnings. Recently there has been a
noticeable increase by investors to
manufacture cigarettes in Malawi using
locally grown tobacco. Mr. Speakers, Sir,
to support and encourage the interest
shown by investors in cigarettes
manufacturing, we are reverting to the
two-tier excise tax regime that prevailed
prior to amendments in 2014.The two tier
excise tax regime will be as follows:__
(i) Levying of US$10 per 1000 sticks
of cigarettes for locally made
Levying of US$10 per 1000 sticks
of cigarettes for imported
cigarettes with 70% locally grown
tobacco content.
(ii) For all other cigarettes outside
(i) above, the excise tax rate
applicable shall be the equivalent
of US$ 20/1000 sticks of
94. Mr. Speaker, Sir, the excise tax
regime to be applied to cigarettes that I
have presented puts the Malawi excise
tax structure in line with the rest of our
neighbouring countries which shall,
therefore, reduce smuggling of cigarettes
to Malawi.
Income Tax Measures
95. Mr. Speaker, Sir, I now turn to
income tax measures. Honourable
Members may wish to know that, since
the late 1960s, life insurance in Malawi
has enjoyed a tax rate of 21 percent,
which is lower than the standard
corporate tax rate of 30 percent. This tax
incentive was meant to encourage
Malawians to develop a culture of taking life
insurance policies, and to encourage
companies in Malawi to invest in this sector.
It is pleasing to note that, currently, not less
than 5 companies have invested in life
insurance business operations.
96. Mr. Speaker, Sir, as tax incentives
must have sunset clauses, and because
there is a fair representation of companies
on the market providing life insurance
products, it is now time to unify
thecorporate tax on life insurance
investments with those of other businesses
by increasing the rate from 21 percent to 30
97. Secondly, Mr. Speaker, Sir, similar
to life insurance, the Government
introduced an exemption on interest earned
on income for the first K10,000.00, with the
intention to encourage a savings culture.
Currently commercial banks have been
running promotions that aim at enticing
Malawians to open savings accounts. As a
result, there has been an uptake of both
commercial bank operations and opening
up of savings accounts in Malawi.
Therefore, as with the life insurance case,
the Government has resolved to remove the
tax exemption on interest earned on income
for K10,000.00.
98. A third income tax measure, Mr. Speaker, Sir, relates to mining. Honourable Members may wish to know that, as a country, we have a mining fiscal regime that was enacted at the time of independence,
hence one that is out of tune with current national and international developments in the mining sector. To address this problem, I shall be presenting to this House, Mr. Speaker, Sir, a bill that aims at providing clarity in the determination of taxable income, incentives and proposals to transfer the administration and collection of royalty from the Ministry of Mines to the Malawi Revenue Authority.
99. Further, the mining fiscal regime bill will also separate provisions for the taxation of mining projects even if the projects are owned by the same company, so that each project should pay its fair share of tax. To bring transparency in the tax incentives provisions that are granted to mining [PAGE 73]
investors and to ensure equal and fair treatment, the fiscal regime for the mining sector will grant tax incentives to qualifying investors. The House may wish to note that the fiscal regime lays bare all tax incentives, details for claiming depreciation allowances, and determination of assessable income, thereby promoting transparency and accountability.
Tax Clearance Certification
100. Mr. Speaker, Sir, in a bid to improve tax compliance, we are proposing that people who do business with Government ministries, departments and agents should be required to produce a tax clearance certificate before transactions are concluded. Indeed this will encourage tax compliance by the private sector, especially the informal sector, as it is envisaged that people who shall do business with Government will be required to go to the Malawi Revenue Authority to obtain the tax clearance certificate before a transaction is concluded.
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Recovery of Tax Where Transaction Has Been Concluded Fraudulently 101. Mr. Speaker, Sir, there are incidences when transactions are concluded between MRA and the private sector but no tax clearance certificate is presented or there has been a fraud.Currently there is a penalty of K50, 000 that is imposed on any person that fraudulently facilitates the conclusion of a tax clearance certificate. Mr. Speaker, Sir, this penalty is too small to deter would be offenders. I shall be presenting a bill to this House amending the penal sum to five times the amount prejudiced or K10, 000,000 -00 whichever is greater.
102. Mr Speaker, Sir, Malawi is now at a point where critical decisions have to be made, not just by the Government but by all Malawians. The future of our country is entirely in our hands.
That future demands of us to think carefully about what role each one of us is playing to change our fate, as individuals, institutions and a people. The surest way to secure that [PAGE 75]
future for posterity is by working hard to change our lives, and by remaining patriotic to our country. On its part, the Government is committed to ensuring that the necessary incentives are created for all Malawians to pursue and realise their full opportunities and potentials. The budget for 2016/17 has been formulated to achieve that Governmental objective.
103. I, therefore, wish to conclude my statement by reiterating that a change in the mind-set of our people is necessary now, more so than ever before. Unless that change occurs sooner rather than later, Malawi will not be able to cope with the bigger challenges that lie ahead, including the enormous challenge of a fast growing population.
104. Mr Speaker, Sir, I beg to move.
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