Ministry of Finance has moved to curb revenue losses by cancelling non-productive Double Taxation Agreements (DTAs) with some countries not willing to renegotiate.
The DTAs or treaties are agreements between two countries to protect against the risk of double taxation where the same income is taxable in two countries.
Most of the agreements are said to be outdated and leading to losses on the part of the government.
Treasury’s move comes against the backdrop of an analysis by the Institute of Chartered Accountants in Malawi (Icam) publised last year, which exposed some questionable business transactions and complexities of some tax treaties.
But a written response on Monday, Ministry of Finance spokesperson Williams Banda admitted that the old DTAs were prone to abuse, leading to revenue loss through international tax planning schemes by unscrupulous investors.
He said Malawi, so far, has 17 DTAs, but only six are in force and the rest are at different levels of ratification to enter into force.
“We are renegotiating with other countries and cancelling one DTA because it is too old and, therefore, not aligned with the current international taxation issues, including anti-treaty abuse provisions which aim at curbing revenue loss through tax evasion and tax avoidance strategies,” said Banda.
In reaction, taxation analyst Misheck Msiska, a partner at MM Tax Advisory Services, said in a written response that business has evolved and matters which the DTAs intended to address 50 or 60 years ago are no longer relevant in the current environment.
He said the DTAs could be offering tax exemption in forms of income, which, based on the current situation, should be subject to tax in Malawi and vice-versa.
Said Msiska: “The biggest loss in my opinion, is the loss of investment, where new important players on the world business scene do not have DTAs with Malawi and we are losing out on the investment which should come to Malawi based on our having a robust DTA to ensure avoidance of double taxation and fiscal evasion.”
Another tax expert Emmanuel Kaluluma, who is also a senior tax consultant at E.K. Tax Consultants, described the move by Treasury as long overdue, saying it is necessary to cancel or renegotiate the treaties because with passage of time, a lot has changed.
He said in the case of Malawi, the treaties were mainly entered into by foreigners who were employed by the British government who might not have cared about which tax jurisdiction should the income go.
The DTAs help to prevent taxing the same income by two different tax jurisdictions and providing assurance to investors of legal certainty in terms of taxation for cross-border investments thereby fostering foreign direct investment.
