Who pays the taxes Malawi uses?

If there is something we all cannot avoid in life it is tax. We pay tax in a variety of ways.

Documented records show that taxation is traced back to ancient Egypt when the Pharaoh collected taxes in his capacity as head of state and living incarnation of the god of Horus. In the Bible, Joseph also asked Egyptians to give one fifth or 20 percent of their harvest to the Pharaoh.

There is tax on some of the foods we consume. There is tax on the income both individuals and corporate earn. There is tax on some of the items people import. There is tax on the airtime we use to make calls or browse the Internet as well as chat in the available social media platforms.

Tax is defined as a compulsory or mandatory contribution to State revenue levied by the government on workers’ income and business profits or added to the cost of some goods, services and transactions.

Taxes drive economies around the world. Taxes are the key source of revenue for governments, including Malawi.

In Malawi, the Malawi Revenue Authority (MRA), established by an Act of Parliament in 1998 and launched on February 14 2000, is a government agency tasked with the responsibility of assessing, collecting and accounting for tax revenues.

Employing 1 439 against an establishment of 1 532 posts, MRA takes a retention fee of three percent from the collected revenues as its main source of income.

In the 2020/21 financial year that ended on June 30 2021, MRA beat its revenue target by K28.7 billion, collecting K1.108 trillion against a target of K1.079 trillion. This fiscal year, which will run for nine months as government transitions to a new financial year to be starting on April 1, the public tax collector faces a target of K1.033 trillion.

During a recent interaction with journalists at Sunbird Nkopola Lodge, MRA commissioner general John Biziwick said the public tax collector is banking on measures to broaden the tax base and increase compliance as key drivers to achieving its revenue target.

Well, the issue of broadening the tax base is not new. It has been tackled before with little success and, at the end of the day, it is the same thin cow being squeezed to produce more milk. This situation has often led to a sour relationship between MRA and compliant taxpayers who feel the public tax collector at times harasses them in the course of tax collection.

Measures put in place to broaden the tax net and achieve targets include block management system, tax stamps and Msonkho Online.

This takes us to the question: Who pays taxes in Malawi?

My instant response is that every Malawian pays taxes in one way or another. In fact, one stops paying taxes the day they die.

However, it is also a fact that there are few compliant taxpayers. MRA records indicate that for income tax, widely known as Pay As You Earn (Paye) and levied on salaries above K100 000, there are about 400 000 individuals. By breakdown, between 160 000 and 200 000 of them are in the public sector and the remainder in the private sector.

Companies also pay a variety of taxes, including corporate tax, withholding tax and capital gains tax. The corporates are classified as large taxpayers and there are between 500 and 700 in total. Among the taxpayers are also non-governmental organisations, mostly in Blantyre and Lilongwe, estimated at about 1 200.

MRA raises most of its taxes from the domestic scene through Pay As You Earn (Paye), Value Added Tax (VAT), Withholding Tax and Corporate Tax. The domestic taxes account for K70 out of every K100 MRA collects. On the other hand, 30 percent of the taxes are from imports.

From the explanation above one sees that there are few people out of the 18.5 million Malawians paying taxes. Nothing wrong with the status, I must say, especially when one considers the 90:10 taxation principle which states that 90 percent of the taxes come from 10 percent of the people. n