Three years after the launch of the Domestic Revenue Mobilisation Strategy in 2021, Malawi appears to be on course to secure its revenue mobilisation targets.

However, economic analysts have urged caution to protect local business interests.

The strategy seeks to increase Malawi’s domestic revenue as a share of gross domestic product (GDP) by five percentage points from 14 percent at the time of the launch in 2021 to 19 percent in 2026 by broadening the tax base, improving tax compliance and improving the perception of the tax system, among other tactics.

The 2024/25 National Budget projects domestic revenue to rise to K3.55 trillion of which K3.26 trillion, which is about 18.1 percent of GDP is expected to be tax revenues.

This means that Malawi’s domestic revenue as a share of GDP has grown by 4.1 percentage points since 2021, representing an 82 percent completion rate.

However, Economics Association of Malawi (Ecama) acting president Bertha Bangara-Chikadza has cautioned that the local tax system, which she describes as “grossly inadequate and rife with tax evasion, avoidance and record falsification”, could undermine tax yields in this financial years.

She observed that collections from of value added tax (VAT), which currently at 14 percent of total tax revenues, is significantly lower than the sub-Saharan and world averages of 35 percent and 51 percent, respectively.

The remarks also follow concerns by the Malawi Confederation of Chamber of Commerce and Industry (MCCCI) that the government has achieved progress on the strategy by introducing punitive taxes that may undermine the development

 of local businesses.

In its response to the budget, MCCCI said the introduction of a 10 percent tax on “supernormal” profits disregards the level of investment that some businesses have to advance to generate profit in different sectors, as such, might deter investors in capital-intensive businesses.

To address the challenges, Bangara-Chikadza urged the government to widen the tax base without scaring away investors, who she said may be enticed to invest in neighbouring countries where “taxes are not exorbitant”.

In response, Malawi Revenue Authority (MRA) corporate affairs manager

Steve Kapoloma says his organisation, a key implementing partner of the revenue strategy, will broaden the tax base by taxing more goods and services and addressing revenue leakages.

He said MRA will intensify the use of tax stamps to protect local and legitimate industries from unfair competition from smuggled or counterfeit products and third-party data matching to enhance tax compliance by identifying discrepancies or omissions in taxpayers’ reported income.

Kapoloma further said MRA will implement a VAT electronic invoicing system, which is an upgrade from the current electronic fiscal devices, “to enhance business functionalities, system performance, security and user interface”.

Speaking separately, Mzuzu University economic lecturer Christopher Mbukwa urged government to look beyond the taxes and focus on the challenge of limited capital that has resulted from excessive government borrowing which has raised interest rates and restricted private borrowing.

“This is an area that the government ought to unlock for improved growth,” he said.

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