Tax and economic analysts have attributed undercollection by public tax collector Malawi Revenue Authority (MRA) to a bad economic environment characterised by low economic activity.
In an interview in the wake of MRA’s publication of tax outturn report showing another missed target in May 2016, Economics Association of Malawi (Ecama) executive director Edward Chilima said in the current economic situation, businesses have been left with little or no breathing space; hence, the underperformance in income and profits taxes.
He said: “It should not be surprising that MRA continues to miss targets. Most businesses are not performing to their expectations and are not making profits as the economy itself is not in good shape.”
He noted that the country does not seem to have any other significant source of revenue given Malawi’s underdeveloped private sector and export base.
“Malawi has a thin tax base especially because there is a large informal sector hence people should not be surprised if the public tax collector continues to miss its target,” he said.
On his part, tax expert Misheck Msiska agreed with Chilima that there is little economic activity; hence, MRA is failing to meet its targets.
He said: “Investment is employment and this is what creates money. In the current scenario where there is very little demand for goods as people have little or no disposable income, businesses are failing to perform which is translating in low revenue collection.”
Msiska, a partner at EY— an audit, business and tax advisory firm, said with the high inflation rates, it is difficult for people to purchase goods and services as they used to.
He said the trend is expected to continue as people are not investing due to the hostile economic situation.
MRA has reported a negative overall variance of K5.8 billion (about $8.3million) in May 2016. In the revenue performance report for May published Wednesday, MRA said it collected K44.86 billion (about $64.8million) against a monthly target of K51.23 billion (about $74 million).
In the proposed 2016/17 National Budget, MRA has a domestic tax revenue target of K708 billion (about $1billion), a development that has raised questions on whether the tax collector will manage in the prevailing circumstances which have not changed from the current fiscal year.
The tax outturn report shows that tax lines such as income profits missed target because of reduced collection of Pay As You Earn (Paye), corporate tax performed poorly so as goods and services owing to less spending on taxable goods and services.
This was also the case with excise duties which were subdued because of little production of excisable goods and import duty on account of exchange rate fluctuations.
In its weekly commentary, Alliance Capital Limited has also advised government to broaden the tax base and improve the effectiveness and integrity of tax collection mechanisms.
The portfolio managers cautioned government to broaden the tax base by capturing more entities into the tax net, observing that there are a lot of informal businesses operating in Malawi which do not pay tax, but they still manage to use social services.
Minister of Finance, Economic Planning and Development Goodall Gondwe in the 2016/17 budget statement said in the absence of budget support, tax measures will, among others, focus on broadening tax base and improving tax administration to support domestic resource mobilisation.
In the K1.13 trillion budget, K774.8 billion or 80.3 percent will be generated locally while the balance of 19.7 percent will come from development partners. While MRA is expected to raise K708.8 billion, non-tax revenue is projected at K66 billion. n