Treasury reviewing double taxation pacts

Ministry of Finance, Economic Planning and Development says it is reviewing old double taxation agreements with other countries.

This follows concerns from tax justice campaigners who say that double taxation agreements Malawi signed with other countries compel multinationals to use them for tax avoidance.

 The campaigners, supported by ActionAid and partners, interested in fair and progressive taxation regime, have argued that Malawi has weak taxation frameworks whose loopholes are providing opportunities for tax avoidance.

Ministry of Finance, Economic Planning and Development spokesperson Davis Sado in an interview yesterday, agreed that some agreements are indeed old, but said Treasury is renegotiating them.

“For some, we concluded and we are still renegotiating with others. Where we are signing agreements with partners, we are ensuring that all these issues are scrutinised,” he said.

Sado said they have, so far,  they have concluded renegotiations with France, Netherlands and Norway and are currently renegotiating with  South Africa, among others.

In an e-mail response, ActionAid Malawi acting head of policy Chisomo Manthalu said that there has been lack of political will to make necessary changes to the current tax framework, resulting in the country losing out on tax revenue.

He said: “The reason we are not having the desired taxation regime is because of the lack of political will to make necessary changes to the current tax framework.

“We have, as a country, outdated and old double tax agreements that are being used by most foreign direct investors to avoid paying taxes in Malawi. We have weak tax frameworks whose loopholes are providing opportunities of tax avoidance.”

Manthalu said at a time developing countries are in the race to attract foreign direct investment (FDI), many of them are offering tax incentives; hence, losing out on revenue.

“Unfortunately, tax incentives do not necessarily attract investors, but a competitive regime for foreign investment is one that enables both government and the investors to achieve their objectives to a certain extent,” he said.

The country’s taxation regime has been under scrutiny by experts and the private sector who have been demanding implementation of the progressive taxation regime to encourage taxpayers to willingly pay taxes while expanding the tax base.

The 2018 report by Oxfam and Development Finance International Commitment to Reducing Inequality (CRI) Index ranked Malawi among the 10 countries in the world in designing progressive tax systems aimed at reducing inequalities.