A 2016 Paying Taxes report jointly conducted and released by World Bank and PwC has rated Malawi 102 out of 189 countries in the overall paying taxes index.
The Paying Taxes study focused mainly on the administrative efficiency of the tax system and the overall burden imposed on businesses as measured by the total tax rate.
“For each economy in the study, three sub-indicators are assessed; the costs of all taxes borne by the economy (the total tax rate), the time required to comply with tax obligations and the number of tax payments made. Using these components, the study continues to provide an objective basis for governments to benchmark their tax systems,” reads part of the report.
The study, according to the report, provides a unique insight into how governments around the world choose to tax companies operating in their jurisdictions and the mechanisms by which those taxes are levied.
“While much of the global focus on tax in recent years has been on corporate income taxes, it must not be forgotten that the majority of tax revenues and the bulk of compliance time is spent on other taxes,” reads in part.
The Malawi Revenue Authority (MRA) has been faulted of late for underperforming after tax revenues (K44 billion) for September 2015 fell by 6.1 percent (K47 billion) and revenues collection for the first quota (July to September) of the 2015/16 fiscal year also falling short of the quarterly target by K4.1 billion having collected K140.5 billion.
MRA has attributed this poor state of affairs to underperformance in corporate tax, taxes on goods and services and international trade taxes, which fell short of set targets by K1.2 billion, K2 billion and K1.17 billion in that order.
Tax consultant Emmanuel Kaluluma told Business News earlier this year that the country’s low levels of government revenue from trade could be attributed to international treaties Malawi signed to.
According to the report, Malawi scored 34.5 percent on the total tax rate made up of profit taxes (12.4 percent), labour taxes (20.4) and other taxes (1.7), beating the continental average of 46.9.
In the category, Lesotho, the lowest on the continent, scored 13.6 percent (profit taxes 10.8 and other taxes 2.8), neighbours Zambia were second with 18.6, Zimbabwe in 13th with 32.8 percent.
In terms of time to comply with tax regimes, Malawi came 11th on the continent with a compliance time of 175 hours, beating regional economic powerhouse South Africa (200) and the continental average of 313 hours.
In the number of tax payments made category, Malawi averages 35, shading the continental average (36.6) by a marginal difference.
The report says that despite many economies’ continued progress in tax reform, there is still a lot of scope for new or further actions to streamline and simplify tax systems, so as to reduce economic distortions and reduce the burden imposed on business.
“The greatest opportunity for improvement would appear to be for labour taxes, where for economies with online payment and filing systems the average time to comply is 19 percent lower and the payment indicator is nearly 75 percent lower than for those economies without widely used electronic systems,” reads part of the report.
The report says that over the past 10 years of the study, tax reform has been high on governments’ agendas with 78 percent of the 189 economies making significant changes to their regimes.
The report notes that the existence of an electronic system may not automatically lead to a more efficient tax compliance process. The efficiency, as measured by the time required to comply with tax obligations, will depend on other factors, including the underlying complexity of a tax system, the reliability of the system and the extent to which it is trusted by taxpayers and tax authorities.
Comparatively in the region, economies with worse ranks overall paying taxes index include Mozambique (120), Zimbabwe (145) and Tanzania (150) while South Africa (20) and Zambia (46) are ahead. Qatar and the United Arab Emirates lead the world rankings.
A recent World Bank Doing Business Report had ranked Malawi 141 from last year’s 144 on ease of doing business. n