Malawians working in embassies and international bodies with diplomatic privileges based in the country will, by 2017, start paying taxes if plans by the Ministry of Finance, Economic Planning and Development are followed through.
Amid decreasing levels of direct foreign aid, Finance Minister Goodall Gondwe, who already revealed plans to introduce new taxes in Parliament in 2014, is seeking to expand the local revenue base to supplement government spending.
However, there has been uncertainty on how and when the plan will be rolled out considering that individual workers in Malawi do not have tax identification numbers for purposes of remitting taxes.
The ministry is also planning to go after the informal sectors such as small-scale mining and other small and medium businesses, Treasury spokesperson Nations Msowoya confirmed to the Weekend Nation.
“The law is clear that everyone, including those working in embassies, must be taxed; the only challenge has been administrative. We will, however, start Paye deductions soon,” said Msowoya.
But he was noncommittal on the exact dates when the exercise would start as indicated by diplomatic sources who say Malawi Revenue Authority (MRA) has already consulted various embassies and missions on the plans to be rolled in 2017.
“Government is indeed carrying out a study on widening the tax base. We are, however, still looking for more money to cover other sectors so that we do a comprehensive review”, Msowoya said.
This move by government might result in embassies losing highly skilled staff to the private sector or other well-paying institutions owing to reduction in earnings due to the tax deductions.
Malawians working in diplomatic missions have been enjoying full salaries without tax deductions whereas the majority of the informal sector currently fall outside the tax-paying blanket due to tax administration challenges.
Msowoya disclosed that, with financing from the European Union and the World Bank through the Mining and Governance Support Project, the government is reviewing the fiscal regime for the mining sector as it has been identified as one of the emerging sectors with potential to grow the economy.
MRA and Treasury officials have been in talks with different stakeholders especially on the move by government in trying to find means of widening the tax base.
In his 2015/2016 budget statement delivered in May last year, Gondwe said government intends to fuse the informal sector into the formal economy so as to enlarge the tax base.
He said although the plan faces difficulties, the hurdles must be resolved in order to increase the public purse.
Gondwe explained that apart from reforming tax systems, the government would explore options for widening the tax base to include the currently large and increasing informal sector as well as developing an inclusive domestic financial sector.
In an interview on Friday, Malawi Congress Party (MCP) spokesperson on finance in Parliament, Alexander Kusamba Dzonzi, hailed the decision by government as long overdue.
He went further to encourage the government to implement the plan as soon as possible.
“With the economic situation this country is in right now let me advise the finance minister to suspend and review all the concession agreements from all foreign companies up until the situation is stable,” he said.
The legislator went further to encourage the government to spare no one in its drive to increase the tax base.
“It is the duty of every citizen to pay tax and with the situation the country is facing now, I would like to suggest that both President Peter Mutharika and Vice President Saulos Chilima should not be spared until the country has recovered,” he said.
The taxation reforms come as the majority of traditional western bilateral and multilateral donors that provide budgetary support to Malawi increasingly continue to withhold direct budget aid and have so far cast doubt on the resumption of budget support.
But some quarters have emphasised that the priority targets should be those businesses benefiting from tax preferences, those misusing transfer pricing to shift profits and the extractive industry where it is estimated that government is losing out huge sums of revenue.
The proposal to tax locally hired employees working in foreign embassies and international organisations is by no means new. As recent as 2014, Gondwe, in his 2014/15 budget statement, announced similar plans but they came to nought.
Meanwhile, according to information on MRA’s website, the tax collecting body on January 13, conducted a workshop in Lilongwe with staff working in embassies and consulates to brief them “on their tax obligation and responsibilities with a view to enhance voluntary tax compliance.”
MRA deputy commissioner-domestic taxes technical, Rainnie Vokhiwa, is quoted as noting that “embassies and some foreign missions pay their employees gross salaries without deducting Paye leaving staff with the responsibility and obligation to file a return of income and pay related taxes as required by the law.” n