Government owes the private sector K20 billion in tax refunds as at the end of April 2017, according to figures the Malawi Revenue Authority (MRA) presented before the Budget and Finance and Public Accounts committees of Parliament yesterday.
MRA said the figure reduced to K15 billion after a debt swap of K5 billion that the business community owes the public tax collector.
However, the committees, which are analysing the budget through clusters, asked Treasury to sort out the tax refunds once and for all because the situation was crippling the private sector.
The two committees also queried Treasury for charging interest and penalties on tax defaulters when it cannot penalise itself for the delays in tax refunds and arrears it owes the business community.
But MRA commissioner general Thom Malata said following the increase in tax refund claims, government has increased the tax refund account from 1.5 percent of the total revenue collected to 2.5 percent starting this month.
He said: “Our expectation is that we will collect revenue and government will pay us 2.5 percent to refund the tax claims.”
Commenting on the refund claims, Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief executive officer Chancellor Kaferapanjira said in an interview Treasury does not feel obligated to repay the value-added tax (VAT) refunds because it does not pay any interest on the money it owes the private sector.
He said: “Standardising the rate of interest is not a problem. But why should Treasury not pay interest to businesses that it owes money?
“The fact remains that arrears keep increasing. Of course, they must audit the VAT claims because there might be some business people who would claim false figures, but it should not be taking this long.
“Basically, they abuse power because this is a country where borrowing is very expensive and the economy cannot grow when government owes the private sector?”
However, MRA argued that it started compiling the tax refunds in 2013/14 following the change of the tax regime to an industrial rebate system.
According to the figures from MRA, tax refunds jumped from K318 million in 2013/2014 to K3.7 billion in the following financial year and have been growing ever since.
Kaferapanjira also confirmed that government is repaying the K115 billion arrears owed to the private sector for the provision of goods and services through promisory notes.
MRA has been given a target of K918 billion to collect to finance the K1.29 trillion proposed budget for the 2017/18 financial year, which is 20 percent higher than the 2016/17 revised target.
MRA said is optimistic to beat the target if the macro-economic environment remains the same.
The tax to gross domestic product (GDP) ratio is expected to improve this fiscal year to around 17.8 percent owing to current tax revenue over performance.n