Corporate tax plunge Blamed on economy

Tax analysts and businesses have blamed corporate tax under performance in the first half of this fiscal year to a harsh economic environment between July and December 2018, a period punctuated by incessant power outages.

Speaking in separate interviews on Wednesday, the analysts and businesses believe that the prolonged power cuts dampened manufacturing firms’ performance.

Manufacturing companies were affected by power blackouts in the first half

In the first half of this fiscal year, corporate tax under performed by K10.9 billion, representing a 20.3 percent drop compared to the same period last year, according to the Mid-Year Budget Review Statement.

Corporate tax, also called company tax, is a direct tax on the income or capital of corporations and sometimes countries may tax corporations on the company’s net profit or tax shareholders in times when the corporation pays dividend to its shareholders.

Tax analyst Emmanuel Kaluluma, who is also senior tax consultant at Blantyre-based EK Tax Consultants, said electricity supply challenges the country faced in the first half of this fiscal year affected output in the manufacturing sector.

He said: “It looks orderly in Malawi that blackout is about darkness in our room, but this problem is much bigger when you look at the performance of companies. When there is no power, people can’t send e-mails, can’t send [business] orders, can’t receive orders and everything is backward.

“As such, inefficiencies creep in and that affects the overall performance of a company and as such you cannot expect to collect more tax from such companies.”

Malawi’s tax on corporations is levied at 30 percent and is within the average when compared to similar rates in the Southern African Development Community (Sadc) trade bloc.

In Malawi, in terms of contribution, pay as you earn (Paye) contributes more to the country’s tax revenue buffer trailed by value added tax (VAT) and corporate tax.

A drop in the collection of corporate tax in the first half could put pressure on the government revenue buffer  and could eventually widen the 2018/19 budget deficit further, thereby forcing government to compromise social service delivery in health and education.

Another tax expert, Misheck Msiska, who is a partner at audit and tax advisory firm EY, explained that since corporate tax is only paid when a company has declared profits, a drop in such tax could signal that not many companies were able to make or declare profits during the first half this financial year.

Malawi Confederation of Chambers of Commerce and Industry (MCCCI) president Prince Kapondamgaga blamed the overall decline in corporate tax on business performance.

He said many firms in the manufacturing sector are still operating below their optimal capacity, largely due to electricity supply challenges in the country.

Malawi Revenue Authority (MRA) spokesperson Steve Kapoloma said on Wednesday corporate tax is affected by a number of factors, but declined to comment further, saying Treasury is better placed to comment on the matter.

However, a source at MRA said when companies make huge profits it does not automatically mean that their contribution to corporate tax would also be high.

“Profits could be high but the taxable income could be lower,” he said.

During the first half of this fiscal year, Treasury collected K479 billion against K456.7 billion in domestic tax, an over-performance attributed to good performance particularly in income taxes, domestic VAT and import duty. n

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