Tax administrators from 30 African countries, including Malawi, have faulted what they call ill-conceived tax incentives offered to potential investors, arguing they drain countries’ revenue.
But a tax analyst, Emmanuel Kaluluma of EK Tax Consultants, yesterday said while tax incentives attract foreign direct investment (FDI), it is up to governments to ensure that the agreements they sign with investors do not put the country at a disadvantage.
He said not all tax incentives are bad.
The tax administrators expressed their sentiments during the Fifth African Tax Administration Forum (Ataf) last week in Gaborone, Botswana where Malawi was represented by Malawi Revenue Authority (MRA) deputy commissioner general Roza Mbilizi.
The meeting discussed how African countries can move beyond aid dependency towards self-reliance and focused on the challenges and opportunities facing countries in building strong tax systems to mobilise domestic resources for their national development.
A statement released at the end of the meeting highlighted the impact of these tax incentives, noting that it is not measured or is insignificant
compared to the foregone revenue.
The administrators have since asked Ataf to develop a model on evaluation and cost benefit analysis to assess the impact of tax incentives.
“Ataf should consider possible work on incentives in the context of the extractives industry,” reads the statement in part.
Although Malawi offers tax incentives with good intentions, there has been an outcry that the country is losing revenue through tax incentives.
Earlier this year, Malawi Economic Justice Network (Mejn) faulted various tax incentives aimed at attracting FDI, arguing that they do not have positive impact on the economy.
Mejn said the incentives have brought negative impact on domestic revenue.
A recent report by ActionAid claimed that Malawi lost about $3 billion (K219 trillion) in five years through tax incentives given to foreign investors to attract FDI.
Malawi is also reported to have lost K19.6 billion through tax exemptions and royalties in the Kayerekera Uranium Mine deal, according to a Berlin-based consultancy and publishing house OpenOil.
But in an interview, Kaluluma argued that if Malawi is not going to have tax incentives, investors will leave and invest elsewhere; hence, the need for properly negotiated treaties with investors that will see an increase in domestic revenue mobilisation.
He said: “Let us not look at investors wrongly. The problem is our own making because we do not have proper agreements with investors, as a result, they take advantage. Government should be sending right people to negotiate these deals.
“The world has opened up and investors are free to invest in a country of their preference. It is, therefore, up to government to ensure that the tax incentives do not put them at a disadvantage.”
According to Malawi Government Annual Economic Reports, the coming in of Paladin Africa’s Kayelekera Mine in Karonga in 2007 boosted the country’s mining contribution to gross domestic product (GDP) from around three percent to 10 percent.
However, since the mine was put on care and maintenance in February 2014, its contribution to GDP has dropped to about one percent.