The World Bank says it is poised to support government initiatives that will improve domestic tax collection to increase tax-to-gross domestic product (GDP) ratio for sustainable economic growth and debt management.
World Bank country manager Greg Toulmin said in an e-mail response that increasing the tax-to-GDP ratio in Malawi is crucial in creating fiscal space to finance priority spending while avoiding unmanageable debts.
His remarks follow a position paper by Oxfam which recommends that the World Bank’s International Development Association (IDA19) funding should support domestic resource mobilisation (DRM) programmes that increase quantity tax to GDP and quality, equitable composition of revenue mobilisation simultaneously.
Toulmin agreed with Oxfam that Malawi currently has a fairly high tax-to-GDP ratio compared to other countries at similar levels of development.
“It is true that the tax regime remains overly complex and has multiple incentives that are not well targeted and non-transparent.
“For the future, there is a desirable agenda to modernise the tax system, with a focus on rationalising incentives and rebalancing the tax mix to support growth,” he said.
The Oxfam position paper indicates that the current IDA DRM efforts by the World Bank in least developing countries are failing to address the quality or equity of DRM, with only 2.8 percent of DRM projects having clear goals around equity.
Oxfam argues that to complement tax-to-GDP indicator, IDA should add an equitable composition of revenue indicator to its IDA19 programmes. Minister of Finance, Economic Planning and Development Joseph Mwanamvekha last week admitted that DRM has been low as evidenced in the 2018/2019 fiscal year.