Malawi Revenue Authority (MRA) has reported impressive performance in tax revenue collection over the past six months. This is commendable in view of the need for Malawi to mobilise resources for implementing the many competing budget expenditures.

The challenge with Malawi budgets is that expenditure needs are many while revenue is consistently on the lower side. The current budget for Malawi is a total expenditure of K2.849 trillion. However, this is against lower revenue which is a total of K2.007 trillion. The budget deficit, which is the difference between revenue and expenditure, is wide.

MRA is an important player in public finance management. It is the main source of government revenue. Other sources of revenue include non-tax revenue and grants from development partners or donors. The revenue target that MRA was given for six months from April to September 2022 was K750.5 billion. Instead, MRA has over-performed by collecting K766.6 billion representing a 2.1 percent above-target collection.

Minister of Finance and Economic Affairs Sosten Gwengwe is currently soliciting input into the 2023-2024 national budget through pre-budget

consultations. One area for consideration is how to strengthen domestic revenue collection by providing additional incentives for MRA to sustain its impressive tax collection performance.

The over-performance in tax revenue is largely on account of good performance in taxes on income and profits and capital gains and taxes on international trade and transactions. For example, taxes that are performing well include Pay As You Earn (Paye), Provisional Tax, Import Duty, and Dividend Tax. On the other hand, there are some taxes which underperform and they push down MRA performance. These include Valued Added Taxes (VAT) such as Domestic VAT and Import VAT.

While MRA needs to be applauded and supported for its performance, there is more that needs to be done, including ensuring adherence to tax justice where citizens are cushioning the revenue losses incurred when corporate taxes go down.

There is also the question of low revenue performance of non-tax revenues.

Non-tax revenues include departmental receipts and fuel levies. Parastatal dividends is another form of non-tax revenue from profits declared by parastatals. However, the dividends are heavily underperforming.  The

Mid-Year Budget target for non-tax revenue was K71.1 billion. However, actual money collected is K39.2 billion, which falls short of the target by K31.8 billion. Specifically, this is because parastatal dividends alone have under-collected by K41.2 billion.  

There could be a number of reasons that can explain this low performance.

Chief among the reasons is the poor state of the economy, where lack of foreign exchange has affected productivity and availability of critical raw materials.

Electricity challenges have also negatively impacted on economic activities in the commercial parastatals. In addition, the fuel crisis which rocked

Malawi recently took away parastatal productivity. However, the major challenge facing parastatals is political interference, which is also a catalyst for corruption.

Revenue collected from development partners has also gone down. This will put a lot of pressure on MRA which may, in turn, begin to squeeze tax payers to meet the revenue shortfall. Hopefully, MRA will not resort to milking the already thin cow.

Honourable Gwengwe reported in Parliament that during the first-half of the 2022-2023 financial year, grants under performed by K49.5 billion. Of the total projected grants at K181.7 billion, which comprised K27.9 billion from foreign governments and K153.8 billion from international organisations, a lower amount of K132.2 billion was disbursed and received by government by end September, 2022.

The revenue trends portray a difficult position for the next budget of 2023-2024. Malawi needs to quickly identify additional sources of revenue.

Reliance on donors may not be a sustainable position. Increasing economic productivity is the only reliable solution.

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