Experts link poor tax performance to economy

Tax experts have blamed the underperformance of the Pay As You Earn (Paye) and the corporate tax by public tax collector Malawi Revenue Authority (MRA) to the bad economic environment.

The experts also said yesterday, less economic activity and a combination of seasonal factors might have affected MRA’s tax collections.

MRA has in recent months been missing targets in the two tax lines—Paye, tax that is derived from payrolls and corporate tax, which is levied on the profits of a firm—despite beating its monthly targets.

For instance, in the month of March,  MRA collected K61.09 billion against the targeted K55.92 billion whereas a total of K19.98 billion against K21.51 billion target in Paye and a K3.03 billion shortfall was registered in corporate tax.

Similarly, in February, MRA beat its monthly revenue target, collecting K53.72 billion against a K52.48 billion target.

The revenue agency, however, missed both Paye and corporate tax projections, collecting K15.38 billion against K16.54 billion target and K2.40 billion against a K4.45 billion target respectively.

Speaking to Business News yesterday in view of MRA’s revenue performance, tax expert Misheck Msiska said underperformance in the two tax lines could be a sign that the economy is either stagnant or dwindling.

He said: “Both corporate tax and Paye are taxes that have to do with business. When the economy is thriving, businesses open up and when money changes hands employment is created which in the end creates Paye and corporate tax.

“If Paye is going down, it  can definitely not be non-compliance of taxpayers but an indication that business are not performing well. If the economy is growing, the Paye and corporate tax are the two indicators from the tax front that show that the economy is doing well.”

Another tax expert, Emmanuel Kaluluma, yesterday said underperformance could be a combination of several factors and an issue to do with unrealistic targets in the context of the status of the economy.

“MRA might have drawn the projections from the performance of the month of January. The figures then are usually high because other companies pay bonuses. This might have driven the figure up.

“At the same time, at the beginning of the year, most companies lay off employees, which automatically affects these two taxes. On corporate tax, the underperformance is an obvious indication that the companies are not performing well,” he said.

Kaluluma said what we should be questioning is that MRA is overcollecting each and every month but estimates tend to differ from time to time.

He said should the trends continue, the financial plan for government could be distorted, arguing that it is important that these figures should be close to what the picture on the ground is and based on efficiency.