Tax incentives, a dent on economies—network
While tax incentives are adopted and used by most African economies, including Malawi, to create jobs and encourage investment in specific sectors, Tax Justice Network Africa (TJNA) has said such incentives could be costly.
Tax experts say the rationale for tax incentives hinges on the desire to attract foreign direct investment (FDI) besides creating jobs, facilitating forward and backward linkages to the domestic economy, enabling technology transfer and generate revenue through pay as you earn (Paye), among others.
In an interview last week in Johannesburg, South Africa, TJNA executive director Alvin Mosioma said it is estimated that African economies are losing in excess of $2.8 billion a year due to tax incentives.
In many cases, argues the pan African organisation and a member of the Global Alliance for Tax Justice, companies enjoy a wide range of investment incentives coupled with tax agreements and treaties that have often been subject to abuse, and at times, tend to favour investors’ countries.
Said Mosioma: “There is a need for elimination of corporate income tax holidays, publicly review and assess all corporate tax incentives with costing and justifications provided for each and a regional framework for cooperation on corporate tax incentives and possible tax harmonisation.”
While agreeing that Malawi may not be spared from tax incentive abuse, tax expert Emmanuel Kaluluma noted that tax incentives cannot be completely ruled out because they help economies when properly managed.
“Realistically, we have to have to appreciate that countries in Africa are competing for the same investors and these investors take advantage of the competition and bargain for incentives,” he said.
Another tax expert, Misheck Msiska, noted that Malawi does not have many incentives and that the local tax regime itself is not all that friendly.
He said if anything, Malawi is losing out on tax incentives through some contracts and development agreements that have been poorly prepared.
“The tax incentives in Malawi are not many and I don’t think we are losing that much by providing these incentives. We know the idea behind providing such incentives is to promote investment, but the tax system is a bit chaotic in Malawi,” said Msiska
But Treasury spokesperson Alfred Kutengule said government may not be ready to forgo some tax incentives that are given to investors.
“Incentives are given according to the situation. Sometimes they look at industries that have potential to employ more people, industries that have export potential and several other factors. So, removing these just like that might not be possible. Government would consider each and every application on its merit,” he said.
Paladin (Africa) Limited, whose mine at Kayelekera in Karonga is under care and maintenance, is one of the multinationals that were given tax incentives such as reduction in corporate tax from 30 percent to 27.5 percent.
