Malawi Confederation of Chambers of Commerce and Industry (MCCCI) has spoken against raising taxes in the forthcoming fiscal year, arguing that the Covid-19 pandemic has left many businesses and households bruised.
In its April 2021 Economic Review, the private sector lobby group said that while increased tax revenue mobilisation is usually the main policy lever for bridging the gap between spending pressures and sustainable public debt, it is prudent for government to implement policies that will encourage growth of the private sector.
Reads the review in part: “Results of the Malawi Business Climate Survey, which is MCCCI’s flagship survey that assesses the prevailing business environment, shows that over the last five years, businesses in Malawi have continued to face the same obstacles to doing business and these have somewhat become chronic.
“Private businesses have time and again complained about the high cost of electricity, high cost of telecommunication services and poor network coverage, high cost of finance and the general lack of development as well as high cost of road transport.”
In the current financial year, total revenue and grants are projected at K1.435 trillion, which is 20.1 percent of gross domestic product (GDP).
Domestic revenues have been projected at K1.179 trillion, representing 16.5 percent of the GDP and of this amount, K1.116 trillion is tax revenue while K63.1 billion is non-tax revenues.
MCCCI observes that the solution to increasing government revenue lies in widening the tax base, which can be achieved by intensifying regulation of the informal and the unregulated industry.
Further reads the review: “By targeting businesses that are non-tax compliant, government will also be levelling the playing field because the informal sector thrives and creates unfair competition to the formal sector because they do not contribute to the tax burden.”
In an interview yesterday, tax expert Emmanuel Kaluluma, who is a senior tax consultant at E.K. Tax Consultancy, said in view of the economic environment, raising tax would further burden businesses.
He said widening the tax base and improving efficiency on the part of the tax collector would help government collect more revenues.
Said Kaluluma: “Looking at how bad the economy has been affected by the Covid-19 pandemic, we can equally see that businesses have not been spared.
“We need to broaden the tax base by bringing to the tax net more informal entrepreneurs while at the same time improving efficiency on tax collection.”
In its 2021 Economic and Fiscal Policy Statement, Ministry of Finance said in the 2021/22 fiscal year, government will continue to broaden the tax base by, among other things, developing and implementing a Domestic Revenue Mobilisation (DRM) Strategy.
Under DRM, government will continue to review tax legislations to modernise the tax legislation system.
The DRM aims at widening the revenue base, strengthening taxpayer compliance, improving the perception of the tax system and strengthening institutional capacity.