Malawi is estimated to be losing K64 billion ($86 million) yearly through tax losses due to profit shifting by multinational companies, new figures published by the Tax Justice Network in London, Britain, on Wednesday show.
Malawi was among 74 countries the United Nations University World Institute for Development Economics Research (UNU-WIDER) in Helsinki, Finland, analysed with results estimating global losses at $500 billion a year.
According to the analysis, the Malawi tax loss was estimated at 2.3 percent of the country’s gross domestic product (GDP), 16.4 percent of the total government revenue and 19 percent of the total tax revenue, Tax Justice Network reports. The report further estimated the tax loss was 11 percent of the country’s total revenue and it was also estimated at 12.3 percent of the country’s total tax.
But director of revenue at the Ministry of Finance, Economic Planning and Development, Chris Kulemeka, said the figures were too high for the country as compared to existing multinational companies. He said the K64 billion could be exaggerated.
Kulemeka, a former deputy commissioner general of Malawi Revenue Authority (MRA), said: “I do not know where they get these kind of figures. They come up with frightening figures. I do not know which companies they are talking about. I wish they would give us more information to verify these figures.”
He said the country has double taxation agreement with the countries where the said multinational companies are coming from.
Taxation expert Shadreck Namalomba said while he could not validate the figures, issues of price shifting, transfer pricing and tax avoidance are problematic to developing countries such as Malawi because they might not have the capacity to track down multinational companies.
He said MRA was expected to legislate some regulations to combat transfer pricing, price shifting and tax avoidance which he was not aware if it was done.
Said Namalomba: “It is a big problem in Malawi because it affects the country’s import cover. As the companies are transferring the profits, the profits go with the forex. We don’t have the mechanism to track and police multinational companies.”
Tax Justice Network said the order of magnitude indicates that the economic development of countries may in some cases be significantly undermined by the activities of multinational companies.
The network described profit shifting as the process whereby companies move profits from their subsidiaries in higher tax countries, where the real economic activity takes place, to other subsidiaries in ‘tax havens. n