Fears over leakages in Malawi tax collection

Malawi could be losing billions of kwacha due to potential leakages in the country’s tax collection system, an international commentator on tax issues in Africa has warned.

Gilbert Muyumbu, regional training adviser for MS Training Centre for Development Co-operation in Arusha, Tanzania, issued the warning at the weekend in Salima when he closed a training for the media and civil society organisations (CSOs) on tax justice.

Muyumbu observed that Malawi could be losing tax revenue through transfer pricing where income earned by various multinational companies is moved off-shore through profit shifting without paying tax to the Malawi Revenue Authority (MRA).

He said in relation, the country could also be forgoing huge sums of money in tax revenue through its inability to tax income earned by companies from assets which are held off-shore.

“Another main leakage that diminish tax revenue is when tax that would have been received had rates not been reduced by tax competition and tax incentives between countries seeking to attract foreign investment,” said Muyumbu.

His observations comes barely a month after ActionAid International, through its report on Malawi, revealed that the country has lost over K970 billion through various tax incentives offered to companies, a figure which according to The Nation analysis is enough to fund three national budgets without deficits.

Over the years, Malawi has been grappling to widen its fiscal deficits-the gap between domestic revenue and expenditure minus grants and resources borrowed domestically or from external sources.

As such, the country has been forced to borrow heavily from multilateral lenders and other sources both internal and external to finance the deficit which many believe has led to the country’s overdependence on donors.

Donors are accounting for about 41 percent of the current 2013/14 fiscal year.

“Malawi, just like any other country, could also be losing the much-needed tax revenue due to corruption, weak enforcement mechanisms, low tax revenue collection capacity, exemptions and privileges granted through patronage system,” added Muyumbu.

He explained that most countries in the region such as Malawi are also forgoing tax revenue by not taxing what he described as the shadow economy or the informal sector.

Muyumbu said it was important for Malawi to do away with ‘misguided’ tax policies which set out exemptions as a means of attracting investment.

He also urged national stakeholders such as civil society and private sector in Malawi whom he said constitute ‘domestic agenda’ to ensure tax justice movements.

In his presentation on tax power, Dalitso Kuphanga of ActionAid Malawi also noted that Malawi is in nominal terms having decreasing financial resources to sufficiently meet its needs for its growing population especially in key areas of health, education, agriculture and infrastructure.

“Donors contribute between 30 and 40 percent to the National Budget whilst the rest is domestically raised through taxes. From the domestic sources, according to a recent study, corporate tax contributes the least and is registering the lowest growth while the bulk comes from VAT, payroll tax and excise duty which is largely paid by poorest of the poor individuals,” said Kuphanga.