Last week, re-appointed Finance Minister Dr. Ken Lipenga told The Nation that government will soon broaden the country’s tax base to reduce over reliance on donors.
The minister, who said he recognised the urgent need to enhance revenue collection, said the country’s base for corporate tax, for example, is still narrow due to the status of the economy and that the value-added tax base continues to shrink since the list of exempted goods or zero-rated supplies is longer than in most countries.
“Scaling up revenue collection must be done in a fair manner so that we do not over-penalise the existing tax compliant companies. We need to broaden the tax base and ensure that everyone pays their fair share of taxes,” says Lipenga.
There are two things here.
The first is that instead of rushing to expand the ‘tax base’ and widen the ‘tax net’, government must first curtail rising expenditure, curb corruption and outright thievery which, according to a former Director of Public Prosecutions (DPP), are draining around 30 percent of our national budget.
This actually means that out of every K100 that government raises, K30 is wasted through corrupt fat cats and thieving civil servants. Imagine what all that money can do.
In other words, our budget deficit cannot be filled by additional revenue measures alone. New ways of raising revenue should be balanced with new ways of putting a tight lid on public spending. Secondly, there is no doubt that the Malawi Government needs to generate more revenue than is currently the case by not just expanding the ‘tax base’ but also widening the ‘tax net’. I mean, there are thousands of people in this country who live large but do not pay income taxes simply because they do not have salaried jobs. Is that fair to those in typical white collar jobs? Why can’t these people be brought into the net?
The problem I see is that this widening of the tax base and tax net business has been talked about for a long time with little action.
Lipenga made an important policy statement, but he fell short of spelling out specifics. How will he expand this tax base? How will he ensure that broadening the tax base is not just about calling for more people to pay taxes?
There are too many businesses evading taxes by conniving with some corrupt Malawi Revenue Authority (MRA) officers. What is being done about that?
One of the ways of widening the tax base is to create new industries. To what extent have we achieved this as a country? We have an opportunity to develop a mining industry worth the name. But look at how we as a country are treating investors who want to help us to achieve this.
First, we are lousy contract negotiators. We give ridiculous tax holidays and other funny concessions and when we later realise that we were beaten at our own game, we start demonising mining companies for reaping us off as if these firms forced our government to sign the deals.
Then we have the tree huggers; the greenies who want to preserve butterflies and get questionable court injunctions stopping exploration activities even before an Environmental Impact Assessment (EIA) report is out and informs us on the risks and mitigation measures, if any.
We also have greedy public servants who want certain companies with no mining experience and an atrocious environmental record to get licences at the expense of experienced and environmental conscious firms that have the technical and financial muscle to bring value to important sectors.
Why can’t we as a country just evaluate bids and get the best investors? Malawi is full of potential for new industries that can help us expand our tax base.
But the process is onerous, corrupt and so full of expensive red tape that some investors just walk away to a country with more favourable business climate and less bureaucratic encumbrances.
For some reason, we as a country have also not been able to develop and nurture innovators. Malawi is full of its own Bill Gates, Steve Jobs and Mark Zuckerberg. But they are somewhere out there rotting away with their great ideas simply because the system won’t support them. And you think we can expand the tax base?
It is not enough to launch strategies. Talking about tax bases won’t just cut it. We must clean up the government system so that is facilitates wealth generation—not for individuals who are paid to provide public services but for entrepreneurs—the risk takers—and for the nation.