The African Development Bank (AfDB) has advised Malawi to institute policy measures aimed at increasing public revenue in the face of its low tax to gross domestic product (GDP) ratio.
In its 2018 Southern African Economic Outlook published on Tuesday, the pan-African bank said domestic resource mobilisation is a critical policy lever to stimulate domestic growth and finance development; hence, the need for low-income countries such as Malawi to implement policy measures to improve revenue collection.
According to the bank, policy recommendations to increase public revenue include broadening the tax base through formalising informal businesses, reforming and strengthening tax administrations and tax inspections to ensure tax compliance, reviewing and revising existing tax legislation to minimise or eliminate tax evasion, strengthening capacity in transfer pricing to reduce tax evasion and reducing tax exemptions and holidays.
“High fiscal deficits and rising public debt pose challenges to macroeconomic stability in several southern African countries. Governments should put in place measures to improve the mobilisation of domestic resources and funds from the private sector to ensure adequate levels of development spending, stimulate growth and create jobs, especially for young people,” said Stefan Muller, AfDB senior economist for southern Africa.
The advice from the bank comes in the wake of continued poor revenue collection by Malawi Revenue Authority (MRA), which has also affected the implementation of 2017/18 budget.
In the current fiscal year, government has projected to collect K980 billion in domestic revenue by June 30 2018, but from the half- year target of K490 billion, MRA under-collected by K46 billion, which is both tax and non-tax revenue.
In a bid to improve tax compliance among various taxpayers of different sectors, MRA said it has intensified conducting tax audits in the non-compliance areas observed from concluded tax audit.
In an interview, MRA head of corporate affairs Steven Kapoloma said while it is difficult to project prospects of the tax audit exercise, they believe compliance will increase revenue collection.
While partly faulting MRA, tax expert Emmanuel Kaluluma attributed the poor performance of domestic revenue to the economy which he said was heavily affected by power failure which reduced companies’ capacity to produce.
“MRA has not expanded its tax net wider. For example, the President and the Vice-President are only exempted from tax on their salary. Other than that, every other income is supposed to be declared and equally taxed.
“The same applies to ministers. But I am not sure if this is followed,” he said.
The country’s nominal GDP is at around $5 billion (K3.6 trillion), according to Trading Economics.