EY Malawi, an audit, business and tax advisory firm, has warned local businesses to brace for an aggressive tax regime as government plans to finance 80 percent of the 2016/17 National Budget with local resources.
In the budget statement presented on Friday, Minister of Finance, Economic Planning and Development Goodall Gondwe said in the absence of predictable budgetary support, tax measures will concentrate on broadening the tax base, improving tax administration, removing economic distortions to spur production and encouraging tax compliance to generate more domestic resources.
In his tax review of the budget, EY executive director for tax Misheck Msiska said in Blantyre on Friday that local businesses are more likely to increase their tax contribution to government now that tax revenue pegged at K708.8 billion will make up 73 percent of the total domestic revenues of the budget.
In the speech, Gondwe said compared with the 2015/16 revised budget, tax revenues are projected to increase by 21.8 percent, reflecting the fact that nominal gross domestic product (GDP), which is the base for most of the taxes, will grow by 24 percent.
He said although planning on the basis of optimistic International Monetary Fund (IMF) projection could create the risk of a higher domestic financing outturn in the event of a shortfall in actual collections, Malawi Revenue Authority (MRA) has the capacity to collect more revenue than it currently does as a proportion of GDP.
Gondwe said initially MRA was given a target of K698 billion but the figure was raised to K708.8 billion.
Msiska said giving MRA a higher projection means that government is giving powers to the tax bull to be aggressive to meet the target, arguing that there would be a lot of consequences as a result of the minister’s pronouncements.
He said: “What that means is that government is going to increase domestic resource mobilisation so that they are in tandem with domestic tax needs to fund our own budget.
“Generally, every tax change is moving in that direction so that government is able to collect to meet the budget demands.”
EY associate director for advisory and assurance Lawrence Dururu noted that in the proposed budget, government is sending a message that it will promote commercial farming based on government’s intention to open irrigation schemes.
Gondwe said government will formally establish the Green Belt Authority (GBA) as a stand-alone public agency which will be allocated money under Vote 078.