Efforts by the Ministry of Finance, Economic Planning and Development to broaden the tax base could be betrayed by the current business environment and government’s efficiency, a tax expert has said.
Treasury had planned to widen the tax net and broaden the base by among others exploring new areas to tax, increase enforcement and monitoring compliance as outlined in the 2019 Economic and Fiscal Policy Statement.
In an interview on Tuesday, tax expert Emmanuel Kaluluma, who is also senior tax consultant at EK Tax Consultants, a former commissioner of tax at Malawi Revenue Authority (MRA), said it will be difficult for Treasury to benefit from tax measures because the business environment is also not conducive for businesses to generate enough revenue.
He said: “Tax is like a child of income; if income is not there, how can one go about to collect tax?
“Because of the wrangles orchestrated by the political environment, Treasury also took almost five months to gazette the new tax measures, which meant government had also lost on the revenue.”
Although the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) said businesses were not expecting Treasury to increase or introduce new taxes in the 2019/20 National Budget, Treasury proceeded to introduce new taxes and increased its domestic revenue target to K1.4 trillion, with K1.3 trillion to be generated from taxes.
Total domestic revenue in the 2018/19 fiscal year, amounted to K1 trillion against the revised estimate of K1.036 trillion, with taxes totalling K968.9 billion against a mid-year target of K978.7 billion, underperforming by K9.7 billion.
At the start of the new financial year, MCCCI chief executive officer Chancellor Kaferapanjira observed that while there have been a few positive tax policy measures, overall there are more punitive measures.
He said it is unrealistic to assume a rosy picture for the 2019/20 National Budget in a year when the business environment has become hostile.
Reserve Bank of Malawi figures indicate that in the first five months of this fiscal year, Treasury has already recorded a deficit of K132 billion, which is K23 billion shy of the estimated K155.9 billion or 2.5 percent of gross domestic product (GDP)
For instance, during the first quarter, Treasury posted a deficit of K25.8 billion, collecting K272.9 billion, due to post-election uncertainties.
According to Treasury’s Financial Report for the first quarter, all tax categories underperformed. Ministry of Finance, Economic Plannin and Development spokesperson Davis Sado said Treasury is making a thorough analysis of the taxes that are affected and the underlying reasons apart from slowdown in business in first half of this fiscal year.