Malawi loses k100bn through tax breaks
Malawi Government has come under fire over tax incentives currently offered to international mining firms, with a study report revealing that Malawi has lost K100 billion (US$240 963 855) between 2008 and 2012 due to tax exemptions.
The Malawi Economics Justice Network (Mejn) and Action Aid International Malawi (AAIM), co-authors of the report on Malawi’s taxation system and its implications on the poor launched last Friday, have also said that there is no tangible evidence that tax incentives attract foreign investors.
“The concept of tax incentives has become a part of package to attract investors in developing countries. While this may have positive connotations at face value, particularly in investment discourse, evidence shows that there are more disadvantages than advantages to the host country,” said Mejn executive director Dalitso Kubalasa in an interview.
He said most research results reveal that instead of tax incentives being responsible in attracting foreign direct investors, good governance and political stability play significant roles in attracting investors into developing countries such as Malawi.
“The other loophole is that some FDIs [foreign direct investors] creatively redesign their investment plans to continue enjoy the tax holiday by closing one company and reopening the same company with a different name but with the same owner and directors,” said Kubalasa.
Malawi government reduced Paladin Africa Limited’s corporate income tax rate, abolished its obligation to pay resource rent tax, reduced its royalty rate to an initial 1.5 percent [compared to national rate of five percent] and gave the Australian-based company other tax concessions for at least 10 years.
In return for the concessions, the government acquired a 15 percent stake in the Kayelekera Uranium Mine (KM) in Karonga.
Commenting on the revenue loss through tax incentives, Kubalasa said between 2008 and 2012 Malawi lost K86.4 billion (US$2 081 927 710) in mining, K2.1 billion (US$5 060 240) in agro-processing, K8.1 billion (US$19 518 072) in manufacturing, K3.4 billion (US$8 192 771) in rental or chains translating to K100.1 billion (US$24 120 481).
He said corporate institutions have been making the least contribution to the national budget compared to individual persons paying VAT, Pay As You Earn (Paye) and exercise duty, based on the study.
He explained that data reveals that corporate tax has been experiencing a diminishing growth when compared with the other three types of taxes.
Action Aid Malawi executive director Martha Khonje said there is need for a more participatory and inclusive tax policy formulation and implementation.
Ministry of Finance acting director in the revenue division Ken Matupa said the fiscal regime in the mining sub-sector features highly on government agenda.
He also said government is currently engaging a World Bank consultant to review and redesign the tax regime in the mining industry.
That is one way to look at it. But the other side is how much has Malawi gained, in jobs, in income. The attitude that prevails is that Malawi wants keep the cake and they want to eat it too. It doesn’t work that way. Unless companies, investors have some incentives why would they come. The unstable environment the unstable kwacha all have to be taken into consideration. We have a saying in English ” A bird in hand is worth two in the bush” Of course some of the agreements seem very bad and things could have been better. That depends upon the negotiators and that seems like it some were selfish for reasons unknown.
Maybe you would care to read the grim and harrowing tales/happenings being replicated by Globe Mining at the Niobium proposed mine at KAYEREKA Kanyika in T/A Mabilabo’s area?You guys do not CHANGE You would milk a cow DEAD then go to the next,greasing political hands as you go! God save Africa from your likes
The overarching economic goals for Malawi must be (1) job creation (2) economic growth and (3) Price stability in that order. Investment is the only driver of both 1 and 2 while fiscal/monetary policy drives 3. The only way Malawi will eliminate abject poverty is through sustained INVESTMENT until the last man/woman is employed!!
Countries around the world are competing to attract investment by giving tax breaks, tax holidays and lowering taxes in general. The school of thought that says high taxes are good is old fashioned and not suited to the current global economic situation. Action Aid should know better. The US Senate is talking about lowering the corporation taxes, the UK is lowering the corporation taxes, and Ireland has gained tremendously in Europe by offering the lowest corporation tax. The facts speak for themselves Dell, Intel, Google etc have all chosen little Ireland as their EU HQ. What Ireland lost in taxes it gained in job creation, economic growth, technology transfer, stimulated local industries and hugely contributed to Ireland exports and balance of payment. I have lived in Ireland and I have seen it first hand the Irish economic miracle. Some international organisations are giving blatantly misguided advice to Malawi. It is not right for these so-called experts who have no understanding of the economic consequences of their actions to keep influencing Malawi in the wrong direction.
For Malawi to attract large-scale investment to create say 10million jobs, then do what it take to attract investment for job creation so people can be pulled from abject poverty. Taxation is a strategy available to the govt of Malawi, like all other govts in the world, to attract foreign direct investment (FDI). What action aid must be advising the govt is how to achieve employment not counting eggs of how many chickens would have been there had they all the eggs hatched. When every Malawian is confronted with a decision on tax just remember these three goals. The picture emerging is that Aid in Malawi is really at war with Malawi economic growth goals. Do not listen to them. It is time Malawi developed through large-scale investment even if that means foregoing some taxes in favour of job creation and economic growth. If people want to propose a policy then they must present an evaluated detailed analysis clearly showing the pros and cons of their proposal. 50 years of aid anniversary and what does Malawi have to show for it? It is time to “aid-off” aid in favour of national economic and self-reliance.
When companies make large investments, the first 3-5 years they do not make money. Tax holiday is intended to help them out in these early years until the company can be stabilised. Malawi is a land locked country as such it must work extra hard to attract investors to the interior. Those few that venture into the interior, they must be looked after so they can graduate into sustained corporations that create more jobs for Malawians and contribute to the export or import substitution.
A lot has been said about Kayerekera. To me most of the articles are written by Monday Coaches with no substance worth looking at. They are misleading and not forward looking. Malawi has minerals in most parts of the country. Urenium is not only at kayerekera but where are the investors? As a Malawian I am ashamed to say that the presence of uranium deposits at kayerekera was known decades ago but there was no investment. Malawi was not on any mining map. This is not to justify the not so favourable kayerekera deal but make no mistake, it is not the worst in the history of uranium mining in Africa, at least my own studies have revealed.
As forward looking people, Kayerekera is a stepping stone. Let us use the lessons from Kayerekera to maximise benefits from the new mining deals. We have to bear in mind that Malawi is not an island. The minerals we have are also found elsewhere. To me, we can maximise benefits by promoting local participation in such investments. Where is Press Cooperation. where is MDC. These corporations were established with the mandate of promoting local investment. One of our great sons had that vision. He had foreseen these challenges we are crying about. We should be asking ourselves questions such as what role our banks are playing. What role is our education system playing in preparing Malawians
to actively participate in these ventures as employees as well as investors.
My humble plea to mejn and Action Aid is that please stop wasting donor money on valueless papers.You would do justice to our country and the unemployed by getting us ‘good investors’. Next time I would like to read that the donor fed NGOs have attracted at least two good large scale investors otherwise spare us the misery of opening the old wounds only for us to feel the pain of loss.
Eldon Kropf,would U please check the chillingly parallel harrowing tales coming from the Globe Mining proposed Niobium mine and tell Malawi whether your argument for: THE OTHER SIDE holds?