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.
