Revenue collection by public tax collector— Malawi Revenue Authority (MRA)— has been on the decline in the ending year, putting government under pressure in absence of donor aid inflows.
According to the International Monetary Fund (IMF), government overspent by as much as two percent of gross domestic product (GDP) during the second half of the 2014/15 financial year largely due to a dramatic jump in the personal emoluments budget line.
Coupled with fiscal slippages and weak revenue collection, government resorted to borrowing heavily from the public.
As at June 30 in 2015, public debt had hit K1.25 trillion—with K829 billion being external debt and K425 billion domestic debt—more than the K930 billion 2015/16 total budget.
At the time, the debt level was around 40 percent of the economy, which, while slightly better than the 66 percent ratio of GDP in June 2014, is dangerously high and unsustainable.
As pressure mounted on government and some sectors such as health started to fail, IMF advised Malawi to revise downwards its budget and revenue projections to reflect the economic situation on the ground.
Minister of Finance, Economic Planning and Development Goodall Gondwe had to swallow his words. When presenting the 2015/16 National Budget to Parliament, he told law makers that Malawi has a strong potential to adequately finance its budget using domestic resources, citing some African countries which finance a reasonable percent of their recurrent budget using domestic resources.
But this was just an optimistic assumption on the ground. According to published MRA reports, revenue collection was underperforming.
In January this year, the revenue agency collected K46.6 billion— missing its projections by K1.9 billion before the revenue fell to K34.5 billion in February.
The underperformance was a trend in March, April and May where MRA collected K34.3 billion, K47.06 billion and K39.4 billion missing its projections by three, six and seven percent respectively.
Come June, the tax collector raked in K41.6 billion, a 13 percent decline against the projected K47.7 billion.
The agency continued to underperform in September and October collecting K44 billion against a target of K47 billion and K53.03 billion against a target of K55.97 respectively.
According to MRA, revenue collection for the first quarter (July to September) of the 2015/16 fiscal year fell short of the quarterly target by K4.1 billion having collected K140.5 billion.
Reacting to the matter, economic commentators decried the underperformance, particularly at a time when the economy was in bad shape and government needed money to provide various services.
The analysts described the shrinking tax revenue base as worrisome arguing that this hurts the underprivileged who suffer when government struggle to fund basic public services as well as the economy in general.
However, some experts described the targets for the tax collector as ‘unrealistic’ based on the economic situation.
Political and administrative studies lecturer at University of Malawi’s Chancellor College, Michael Jana, found it not surprising that MRA continued to miss targets saying the agency was put under too much pressure to meet targets.
He said government does not seem to have any other significant source of revenue given the country’s underdeveloped private sector and export base and the freezing of direct donor aid.
“Malawi has a thin tax base especially because there is a large informal sector hence people should not be surprised if government continues to plot strategies to penetrate the informal sector so it can collect more taxes,” he said.
Concurring with Jana, economic commentator Edward Chilima observed that the tax collector must have raised its bar too high hence missing the projections.
He said their targets are not practical, arguing that the tax collector should consider setting targets that correspond with the current situation.
Chilima also noted that there might be inefficiencies or that some people may also not be remitting taxes, advising the revenue collector to evaluate the system.
But Chancellor College economics lecturer Ben Kalua attributed failure for the tax collector to meet the targets to unsettled arrears of government to the private sector saying this depresses industry players.
He noted that there is less spending of people and that people are buying less from businesses which in the end is relatively affecting the revenue collection.
“If Malawi, just like other countries had a barometer that measures the economic performance by how people spend, it could be revealed that private sector has been depressed, a situation which impacts negatively on the economy and revenue collection,” he said.
Chancellor College political scientist Boniface Dulani pointed that the underperformance mirrors sluggish performance of the economy. He urgued that the tax collector cannot collect much amid the current economic problems.
Earlier this year, Economics Association of Malawi (Ecama) president Henry Kachaje said meeting targets would require a more robust strategy that could gradually increases the tax base.
He cautioned that it will be a challenge to raise more revenue domestically considering that many businesses might not perform well in the first quarter of this year due to the negative impact of the floods on the economic performance.
But director of Debt and Aid Management in the Ministry of Finance, Economic Planning and Development, Peter Simbani, was on record saying government has set measures to maximise domestic revenues account which currently wires around 60 percent of the national budget.
He said government will intensify broadening of the country’s tax base, strengthening the capacity and systems in revenue collecting agencies and reducing the cost of collecting and improving service provision to taxpayers.
Meanwhile, MRA Commissioner General Thom Gray Malata has said new measures including enforcementy of Electrical Fiscal Devices (EFD) and extensive awareness campaigns by mobilising consumers to demand EFD receipts are being put in place to boost revenue collection.
He says MRA is installing a new system called the Integrated Tax Administration System (ITAS).
“We are going to widen the net and we are introducing Integrated Tax Administration System [ITAS], which is a computerised system.
“Currently we are running manually, but we are going to put a very robust tax administration system that will be web-based and will simplify our work and widen our tax base in the process,” Malata said. n