Mejn queries tax incentives
The Malawi Economic Justice Network (Mejn) has faulted various tax incentives in the country aimed at attracting foreign direct investments (FDIs), saying they are nothing but a fallacy, with no real positive impact on the economy.
Mejn’s executive director Dalitso Kubalasa said in an interview that the incentives have brought negative impact on fiscal revenues.
In addition, he said they have persistently and frequently created significant opportunities for illicit behaviour both from the investors and tax administrators.
The observation follows recent remarks by the Malawi Investment and Trade Centre (Mitc) chief executive officer Clement Kumbemba, that there are no measures at the moment to ensure that investors who are given 10 year-tax holidays remain in country after completing that period.
According to Kumbemba, the holiday, given to investors in agro-processing and energy fields, is aimed at boosting FDIs in the country.
He contends that even if they leave after that period, they will have already created jobs, infrastructure and that it takes time to generate any profits, and therefore, should be exempted from paying tax over a certain period.
This was one of the incentives Mitc offered to would-be investors during the India-Africa Trade meeting in New Dehli, India last month.
Said Kumbemba: “In the first place, if you don’t give incentives, a company will not come into Malawi. So you would rather bring that company, because in one way or the other, the company will pay taxes through either input or on raw materials, Pay As You Earn [Paye] and so many other things.
“They employ people, their quality of life will improve, of course you cannot be 100 percent, you have one or two people who sometimes will try to create an impression that there are some people who are reaping off the system. Tax incentives are important, because particularly to companies that are just starting; you are helping a company to cushion on their cost of production.”
The Mitc CEO argued that when a company is coming into a country, it has to build a factory, bring machinery, and train a person which pushes the initial capital costs up.
“That is why it is common practice to consider incentives for companies that are just starting and those that are expanding because it is important to acknowledge the high spending going on at that particular phase,” he added.
But Kubalasa said tax incentives continue robbing the country of resources that could have helped grow the economy.
Just like many struggling least developed countries, Kubalasa said Malawi has also fallen into the tax incentive trap, which has resulted in countries facing severe budgetary constraints amidst growing corruption and illicit financial flows.
“If we are to calculate and quantify all the tax incentives against the benefits that should have ideally been accrued, we will realise how much this has pained and robbed us.
“By now we should have perhaps even inclusively grown our economy much more; and perhaps we should have created much more jobs and more head-way in the age-old anti-poverty song since independence. In this day and age, we just can’t continue business as usual,” he said.
The Mejn boss then suggested the need to come up with a much more robust, comprehensive and urgent research, and look at more strategic win-win ways and approaches to attracting sustainable FDIs.
“With the on-going competition both by countries in attracting the FDI, but also even among the investors themselves, it remains clear from the trends thus far, that it actually takes much more than just offering unreasonably high tax incentives or high tax holidays to attract and retain the foreign direct investments.
“Long-term strategies therefore need to be urgently but carefully weighed and analysed, that will have to lean more towards improving both the human and physical infrastructure; the cost of doing business; energy and where necessary, to streamline government priorities, policies and procedures at the core of government efficiency and effectiveness,” he suggested.
