Malawi tax rate rises to 34.9 percent

Malawi’s total tax rate on businesses rose by 2.5 percentage points to 34.9 percent between 2011 and 2012, while the number of payments increased by five to 35, a recent report indicates.

The 2014 Paying Taxes report prepared by Pricewaterhousecoopers (Pwc) and the World Bank has attributed the increase in Malawi’s total tax rate in the period to a rise in the effective rate of employer pension contribution and changes in stamp duty on property sales.

Total tax rate according to the 2014 World Bank Doing Business report measures the amount of taxes and mandatory contributions payable by a business in the second year of operation, expressed as a share of commercial profits and includes profit, labour and other taxes.

Commenting on the development, Economic Empowerment Action Group (EEAG) president, Lewis Chiwalo in an interview on Monday said businesses in Malawi are heavily taxed.

“It is high time Malawi broadened its tax base to ensure that businesses pay lower tax rates. The lower tax rates will motivate businesses to comply and reduce default rate. The Malawi Revenue Authority (MRA) should also provide incentives to tax compliant businesses, like the case in some economies in the region,” said Chiwalo.

The report explains that the increase in the number of payments was due to a new tax on property transfer and to the pension contribution, which was introduced part way through 2011, having been in place for all 2012.

Profit tax—the amount of taxes on profits paid by the business as a percentage of commercial profits—stands at 20.7 percent while labour tax, the amount of taxes and mandatory contributions on labor paid by the business stands at 9.6 percent of commercial profits.

In the 2014 World Bank Doing Business in Malawi tumbled 26 steps on paying taxes to rank 81 from 55 in the previous report. In the report, overall Malawi fell 10 steps to rank 171 out of 189 economies.

And in the 2013/14 budget, Malawi introduced a three percent withholding tax on all imports in order to ensure equity and fairness in the tax system and to ensure that most of the traders pay income tax.

Comparatively to Malawi, in the region, economies with lower total tax rates include Zambia at 15.1 percent, Lesotho 16 percent, Botswana 25.4 percent, Seychelles 25.7 percent Mauritius 28.2 percent and South Africa 30.1 percent.

Zimbabwe at 35.3 percent, Mozambique 37.5, Kenya 44.2, and Tanzania 44.9 percent are above Malawi.