The country’s banks contributed 60 percent or K210.7 billion, in corporate tax in the last financial year, a situation experts say portrays the weakening productive industry which is risky for the economy.
In a statement, Bankers Association of Malawi, a grouping of eight commercial banks, said for instance, banks contributed K210.7 billion out of K353.1 billion in corporate tax, paid K38.7 billion in pay as you earn, K5 billion in fringe benefit tax, K10.5 billion in non-resident tax, K710 million in import duty and K13 billion in dividend tax, among others.
Reads the statement in part: “Banks contribute significantly to government revenues and they often stand out as major taxpayers.”
This means that apart from banks contributing 60 percent in corporate tax, the sector also contributed 26 percent to total tax revenue amounting to K1.09 trillion in 2023/24 fiscal year, according to the statement.
In an interview on Thursday banking expert and financial consultant Misheck Esau described the situation as worrisome, saying it means that the real sector has slowed because of government’s borrowing activity, which has dwarfed the private sector’s access to capital.
He said: “This confirms what we have always known that the banking sector’s lending to the government is crowding out everything else that is going on in this economy to the extent that the corporate sector is being dwarfed.
“This should worry all of us because the banking sector alone does not constitute an economy.”
While acknowledging banking sector’s robust profitability and overall financial health, Economics Association of Malawi acting president Bertha Bangara Chikadza said on Thursday that the scenario is risky as it could mean other sectors are declining due to high interest rates.
“However, this heavy reliance on a single sector for a substantial portion of corporate tax revenue also poses a potential risk,” she said.
Audit consultant Moffat Ngalande, who is former Institute of Chartered Accountants in Malawi (Icam) president, said while the banking sector remains critical to economic growth, it is worrisome that the sectors that contributes 92 percent of the workforce can only contribute 40 percent in corporate tax.
“This shows lack of diversification of positive fortunes in the economy. We should aim to see other sectors performing well such as consumer and industrial products and services as broader sectors,” he said.
Icam chief executive officer Noel Zigowa said while such a tax contribution could increase government revenue, economic growth and financial stability, there are risks such as over-reliance on a single sector, regulatory challenges and inequality and social impacts.
In the last financial year, Treasury to introduced 10 percent corporate tax on profit above K10 billion.
The financial services sector contributes about 7.1 percent to the country’s gross domestic product, according to the Malawi Government Annual Economic Report 2024.
