sori there was a technical glitch I guess:- Last evening we were asked if it is true that by reducing corporate tax in Malawi by 1% (from 30% to 29%) would result in 100,000 jobs being created as argued by one of the running mates during yesterdays debate. Here is our answer. According to the 2013/2014 budget documents, government planned to collect about MK40 billion in corporate tax (we know this number is likely to be revised upwards since Malawi Revenue Authority has been beating the target every month). If we divide the MK 40 billion by 30 we get MK1.3 billion which means that every 1% corporate tax collects about MK1.3 billion. Thus, by reducing corporate tax by 1 %, companies would save about MK1.3 billion. If we assume that the companies use the MK1.3 billion to hire additional help (create jobs) totaling 100,000, then, every worker would get MK13,400 per year (MK1.3 billion divide by 100,000) or MK1,116 every month (MK13,400 divide by 12). since we said MK40 billion will likely be revised upwards and also that maybe there could be maltiplier effect in that companies would reduce prices and demand would be increased which would result in more corporate tax, we will assume then that due to all that, corporate tax will be MK100 billion and not MK40 billion as per the the 2013/2014 budget documents. Again, mathematics shows us that for 100,000 jobs to be created after corporate tax is reduced from 30% to 29%, then every employees would go home with about MK3,000 every month. Obviously, it is joke to say that 100,000 jobs have been created when the people are getting Mk3,000 every month. this is not even enough to cover for lunch money or transport for 1 month for a person!!!!! now, if you ask again, would reducing corporate tax by 1% create 100,000 jobs? our answer is this, NO.(copied from Matilda Sibweza Palamuleni, Renowned Economist from The University of Malawi)
Posted on: Mon, 10 Mar 2014 07:56:24 +0000
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