Two international non-governmental organisation (NGOs)—Oxfam in Malawi and ActionAid Malawi—have asked Treasury to raise corporate tax rate from the current 30 percent.
This comes at a time government needs more domestic revenue to finance its social services, infrastructure and development goals.
The two institutions have argued that government must continually balance the desire to offer a competitive tax environment for Foreign Direct Investment (FDI) with the need to ensure that an appropriate share of domestic tax is collected from multinationals.
Malawi’s tax on corporations has been at 30 percent for years, but some tax experts argue that the rate is relatively lower compared to other neighbouring countries such as Zambia which is taxing corporate entities at a rate of 35 percent on income or capital.
In its latest country brief on Commitment to Reduce Inequality (CRI) index for 2020, Oxfam in Malawi says while tax is recognised as an important factor in decisions on where to invest, it is not the main determinant.
Reads the report in part: “FDI is attracted to countries offering access to markets and profit opportunities; a predictable and nondiscriminatory legal and regulatory framework; macroeconomic stability; skilled and responsive labour markets; and well-developed infrastructure.
“All of these factors will influence the long-term profitability of a project”
In an interview on Tuesday, Oxfam in Malawi country director Lingalireni Mihowa said for a country like Malawi, every opportunity that allows to progressively collect more tax from rich individuals such as corporates should be capitalised “and it is important to do so”
She recalled that in 2014, Malawi reduced corporate tax for certain sectors from 33 percent to 30 percent and that such an adjustment left a huge gap on the government revenues that the country has not been able to fill ever since.
“If anything, the country needs to adjust its corporate tax upwards to raise a bit more revenues from these corporate individuals as opposed to introduction of many more consumption taxes on basic needs such as water, electricity, sanitary pads for women, which heavily burden the poor,” said Mihowa
The 2020/21 National Budget projects a domestic revenue target of K1.179 trillion, but economic experts are skeptical about such a target, saying if anything, Treasury will accumulate more arrears
They argue that the overall fiscal deficit of K755 billion in this fiscal year could even be higher than planned.
In the same budget, government has also re-introduced a 16.5 percent value added tax (VAT) on refined cooking oil, among others, despite a general outcry from consumers and others to scrap off such a tax on a basic commodity.
According to Oxfam’s CRI Index of 2020, Malawi’s tax policies are more progressive
The country’s overall score has also dropped in in recent years as the burden of taxation has fallen more on to the poorest segment of society.
Speaking separately, ActionAid Malawi programme specialist responsible for accountability and public services Yandura Chipeta, whose organisation is also aggressively involved in tax justice campaign, also noted that corporate tax collection