Chamber for Small and Medium Enterprises Association (Smea) has urged Treasury to come up with incentives to stimulate growth of the sector to enable players to contribute to the tax net.

The appeal follows an announcement by Minister of Finance and Economic Affairs Simplex Chithyola Banda in the Mid-Year Budget Review Statement on Monday that all businesses operating in Malawi, with a turnover of K5 million and above, must have a verifiable, active, and operational bank account and be properly registered for tax.

In an interview on Tuesday, Smea executive secretary James Chiutsi observed that while formalising the SME sector brings more opportunities to the players, including access to financing, their active contribution to the tax basket will depend on whether businesses are growing.

He said: “While we agree that SMEs must become formal, we must as well hasten to say that the macro-economic environment on the ground is not favouring us, especially the SMEs.

“As government is trying to make SMEs formal, it must also be coming up with incentives that help SMEs grow.”

Speaking in Parliament on Monday, Chithyola Banda said using relevant pieces of law, government will enforce that all businesses operating in Malawi with a turnover of K5 million and above must have a verifiable, active, and operational bank account and properly registered for tax.

He said: “The Ministry of Finance through Malawi Revenue Authority [MRA] will intensify awareness and registration of activities for tax purposes. Malawi is open to legitimate and compliant businesses only.

“Government shall facilitate legitimate trade and shall decisively deal with illicit trade through stronger border enforcement.”

MRA data shows that as at June 2022, the tax collection agency had 33 143 active taxpayers of whom only 2.5 percent of the 1.14 million small businesses are tax compliant.

However, through the Block Management System, a taxpayer outreach scheme, which physically identifies and maps taxpayers and breaks them down into manageable blocks to allow MRA to visit them in person to educate and encourage tax compliance, MRA aspired to bring 1.3 million SMEs into the tax net.

The Block Management System is not a new measure, but a concept intended to enable taxpayers to access tax services easily than before.

The Malawi Government adopted the system to level the playing field so that every business person pays their fair share of taxes due to government, increase taxpayers’ understanding of their tax rights and obligations and bring closer to the taxpayer services such as tax registration, payment of taxes and tax education, among others.

It is estimated that the MSME sector contributes about 40 percent of gross domestic product and 24 percent of employment, and that about 21 percent of the country’s adult population derives their livelihood from the sector.

The 2019 Malawi FinScope MSME Survey estimates that there are about 1.6 million MSMEs employing about 1.8 million people.

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