Wednesday, May 18, 2022
  • About Us
  • ImagiNATION
  • Adverts
  • Rate Card
  • Contact Us
The Nation Online
Advertisement
  • Home
  • News
  • Politics
  • Business
  • Entertainment
  • Life & Style
    • Every Woman
      • Soul
      • Family
    • Religion
    • Feature
  • Society
  • Columns
  • Sports
  • Chichewa
  • Enation
No Result
View All Result
  • Home
  • News
  • Politics
  • Business
  • Entertainment
  • Life & Style
    • Every Woman
      • Soul
      • Family
    • Religion
    • Feature
  • Society
  • Columns
  • Sports
  • Chichewa
  • Enation
No Result
View All Result
No Result
View All Result
Home Business Business News

Inefficiencies grip Malawi’s vat system

by Dumbani Mzale
09/12/2021
in Business News
4 min read
0
Share on FacebookShare on TwitterShare on WhatsAppShare on LinkedinLinkedinShare via Email

The new Domestic Revenue Mobilisation Strategy has exposed glaring inefficiencies in the country’s value added tax (VAT) system, revealing that the country is only collecting a meagre 14 percent of VAT potential revenue.

The strategy, which was launched on Monday in Lilongwe to guide the implementation of the country’s tax, non-tax policy as also tax administration between 2021 and 2026, also shows that if gross collections from VAT could be discounted for VAT refunds, the actual collections from such a tax component could actually be much lower.

In sub-Saharan Africa, VAT C-efficiency currently stands at 35 percent while the world average VAT C-efficiency is 51 percent.

This means that at 14 percent, Malawi’s efficiency in collecting VAT is way below both the regional and global standards.

The C-efficiency ratio is the most commonly used indicator for evaluating the revenue performance and overall efficiency of the VAT system.

It is simply the ratio of actual revenues to theoretical revenues from a perfectly enforced tax levied at a uniform rate on all consumption.

Reads the strategy: “The underperformance in VAT collections points to gaps in tax policy and the capacity of the tax administration to enforce collections. Modernising the VAT may provide an estimated additional two percent of GDP in VAT revenues.”

Meanwhile, the strategy has recommended for the need to modernising the VAT to provide an estimated additional two percent of GDP in VAT revenues.

A Blantyre-based tax expert Emanuel Kaluluma, who is senior tax consultant at EK Tax Consultants, on Tuesday attributed the VAT revenue underperformance to low voluntary compliance which he said relates to VAT revenue collection.

He said: “Taxpayer education is lacking. It is hard to justify what government does with the money. There has also been poor administration of VAT when it was administered and this is because surtax was under customs officials who were properly trained, but when decisions were made to make it [surtax] become under income tax, income tax officers lacked background.”

In her presentation on the new revenue strategy on Monday, Revenue Policy Division deputy director Chikaiko Chilima said revenue performance by category reveals that Malawi relies more on direct taxes than consumption taxes.

However, she said that the country has potential to expand consumption taxes and increase its share in the revenue mix since they are broader, more efficient and growth friendly than direct taxes.

Finance Minister Felix Mlusu said the strategy has identified key areas to enhance revenue collection and these include automation and modernisation of tax and non-tax revenue policy and collection systems at the national and local level, widening the tax base, building a culture of tax compliance among all citizens through strengthening enforcement, simplifying tax laws and improving transparency as well as developing professionalism, skills and tools for tax policy analysis and reforms for the tax administration.

VAT is levied on final consumption of goods and services and was first known as surtax which was introduced under the Customs and Excise (Tariffs) Order of 1989.

The strategy seeks to increase the ratio of the country’s domestic revenue to gross domestic product (GDP) by five percentage points from the current 14 percent to 19 percent in the next five years.

Malawi’s domestic revenue ratio to GDP was at 13.4 percent for the 2019/20 financial year. Such a rate was the lowest in the region and compared negatively to the sub-Saharan average of 16 percent.

According to the World Bank, a tax to GDP ratio of 15 percent is the minimum threshold required for the government to provide basic goods and services to the citizenry while the United Nations estimates that developing countries need to raise at least 20 percent of their GDP through taxes to meet Sustainable Development Goals by 2030.

Previous Post

Malawi IPPs to benefit from K71bn facility

Next Post

ACB moves to speed up corruption cases

Related Posts

Kwengwere: It is a perfect platform
Business News

Malawi, Zimbabwe to host business forum

May 17, 2022
Business News

Investment pledges jump to K666 billion

May 17, 2022
Business News

Standard Bank moves to boost remittances

May 17, 2022
Next Post
To be probed over leaked audio: Chizuma

ACB moves to speed up corruption cases

Opinions and Columns

Candid Talk

Know your place in his/her life

May 15, 2022
People’s Tribunal

Why can’t we start with implementing the reforms?

May 15, 2022
Big Man Wamkulu

My wife is a WhatsApp addict

May 15, 2022
My Thought

Two years of nothing but development rallies

May 15, 2022

Trending Stories

  • A fleet of UTM vehicles: The movement says it is funded by well-wishers

    UTM party vehicle issue goes to MRA

    0 shares
    Share 0 Tweet 0
  • What bloody chieftaincy!

    0 shares
    Share 0 Tweet 0
  • PAC clears Macra director general, cautions board

    0 shares
    Share 0 Tweet 0
  • Firm discovers copper deposits

    0 shares
    Share 0 Tweet 0
  • Investment pledges jump to K666 billion

    0 shares
    Share 0 Tweet 0

Malawi-Music.com Top10

  • Values
  • Our Philosophy
  • Editorial policy
  • Advertising Policy
  • Code of Conduct
  • Plagiarism disclaimer
  • Disclaimer
  • Privacy Policy
  • Terms of use

© 2022 Nation Publications Limited. All Rights Reserved.

No Result
View All Result
  • Home
  • News
  • Politics
  • Business
  • Entertainment
  • Life & Style
    • Every Woman
      • Soul
      • Family
    • Religion
    • Feature
  • Society
  • Columns
  • Sports
  • Chichewa
  • Enation

© 2020 Nation Publications Limited. All Rights Reserved.

This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.