Government advised to review tax incentives

Economist Thomas Munthali, who is also former president of the Economics Association of Malawi (Ecama), has tipped government, currently reeling under a huge fiscal gap, following budget aid suspension in 2013, to review some tax incentives given to investors.

Munthali, who is the country director for Innovations for Poverty Action (IPA), believes such a move could help government collect more domestic revenue “if the economy is to survive the turbulence”.

Commenting on the state of the economic in an interview in Lilongwe last week, he said it is imperative that government moves on with the zero-aid assumption as is the case in the 2014/15 budget.

“ While donors may come back at the back of efforts being made by authorities to deal with Cashgate cases and ensuring that the financial management system loopholes are being sealed, it is safer for authorities to move on the assumption that no donor support will be forthcoming,” said Munthali.

He said that currently, over $100 million [K47 billion] is forgone annually due to tax incentives, stressing that government could review tax incentives that may not have achieved their intended purposes.

Quoting available statistics, Munthali said Malawi loses between $150 million [K70 billion] and $275 million [K129 billion] in tax revenue in a year due to money getting out of the country illicitly

The figure is close to the revenue that tobacco generates at auction level annually, he said.

“These resources could augment the social sector financing and prevent government from excessive domestic borrowing, thereby containing inflation and hardships among the poor.

“By definition, illicit financial flows are funds that are illegally transferred, illegally earned, or illegally utilised and cover all unrecorded private financial outflows,” said Munthali.