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Home Business Business News

Socam faults Malawi’s tax regime

by Johnny Kasalika
17/04/2012
in Business News
3 min read
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{jcomments off}The Society of Accountants in Malawi (Socam) has torn into the country’s taxation regime which has numerous upfront taxes thereby slowing businesses and consequently making government a 30 percent shareholder in every legitimate business.

The Malawi’s accountancy professional institute has cited the Withhoding tax (WHT) at 10 or 20 percent, saying it is high for small and medium enterprises (SMEs), value added tax at 16.5 percent, provisional tax-an advance payment of income tax made in quarterly instalments, the 30 percent on corporate profits and the one and two percent turnover taxes for turnover under K50 million (about $300 000) and over introduced in the 2011/12 budget as hindering growth of businesses.

Socam chief executive officer Daniel Dunga has since called for an overhaul of the taxation regime, arguing there are too many inconsistencies within the Tax Act and other tax legislation such as export allowance and Pensions Act.

He said the taxation regime is critical to any significant investor since many of them perform investment appraisals before undertaking any investment projects.

“The most common model for investment appraisal is the internal rate of return (IRR), that is to say, how much money an investment will generate. The IRR formula includes tax as a very important component,” said Dunga in his presentation titled The Role of Tax in Business Growth made at the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) annual meeting in Blantyre on Friday.

He said investors investigate tax concessions and investment allowance that are available to an investor in a country before committing to investing, arguing each country competes as an investment destination with the other equally attractive destinations.

On WHT, he said, netting off with other taxes is not allowed by the Malawi Revenue Authority (MRA), adding this should have been money working in the business.

“VAT must be settled by the 14th day of every month, that is within 30 days. In business, it is normal to expect payment in 90 to 120 days. Businesses are, therefore, forced to borrow to settle tax obligations. This is bad for business,” said Dunga to attentive captains of business.

He appealed to government to create a conducive environment for profit growth, minimise getting taxes upfront and that taxes that inhibit growth such as turnover tax are not good for business.

Dunga said 60 percent of businesses’ time is spent in dealing with tax issues.

In his presentation, he said since Malawi’s gross domestic product (GDP) has been narrowing, many businesses have also reported shrinking profits.

“Tax can only increase from GDP growth, otherwise if tax is growing much faster than GDP, it means people are being overtaxed,” he declared, adding that the effects of overtaxing include business closures, no new investments, tax underperformance, tax evasion, tax corruption and narrowing tax base.

The MRA had not yet responded to a questionnaire on Monday to address concerns raised by Socam.

The World Bank Doing Business Index for 2012 showed that Malawi has too many taxes for business and it takes too much time to conclude a tax return or a tax matter

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