The international Monetary Fund (IMF) says tax reforms in revenue administration and tax policy are key to improving tax collection.
In its working paper published last week titled Tax Revenues in Fragile and Conflict-Affected States—Why Are They Low and How Can We Raise Them? IMF said to sustain the reforms, strong political commitment is key in view of the Covid-19 pandemic.
Reads the paper in part: “To sustain tax reform efforts over a long period, apparently strong political commitment supported by international partners plays an important role.
“Sustained tax reform efforts are particularly important, following the Covid-19 outbreak.”
For instance, IMF said that Malawi achieved a substantial increase in tax revenue of 11 percentage points of gross domestic product from 2002 to 2013 through strengthening administration in the tax and customs offices, reviewing tax rates and tightening exemptions, whose reforms were sustained despite changes in political administrations.
Tax consultant Emmanuel Kaluluma, in an interview on Tuesday, said tax reforms are key, but in Malawi, the challenge has been enforcement of the law.
He said: “What we are hearing now just confirms that perhaps the reforms that were done are not being fully enforced. There has been a lot of laxity and misplacement of people in tax administration.”
On his part, Malawi Confederation of Chambers of Commerce and Industry chief executive officer Chancellor Kaferapanjira said there are a large number of non–transparent and inconsistent incentives that could be rationalised, but tax reforms are often characterised by piecemeal legislation, uncertainty and unpredictability.
Ministry of Finance figures show that tax revenue has performed below their forecasts in four of the last five fiscal years from the 2011/12 fiscal year except for 2012/13 financial year.
In the last financial year, tax revenues were estimated at K1.369 trillion, but projections show that government collected K1.045 trillion.
Currently, in the wake of the Covid-19 pandemic, Treasury has seen its monthly tax revenue fall by an average of 35 percent from K90.8 billion per month during pre-Covid-19 period to a monthly average of K59.1 billion during the post-Covid-19 period.