MRA facing hitchesto broaden tax net
Malawi Revenue Authority (MRA) efforts to attract the informal sector into the tax net continue to face hurdles as most of the targeted small and medium enterprises (SMEs) are working on re-establishing themselves and surviving, Business News has established.
MRA aspires to bring 1.3 million SMEs into the tax net through its Block Management System (BMS), which was adopted to level the playing field.
However, since its launch on November 7 2021, out of an estimated 1.6 million SMEs in the country, MRA data shows that the system has only registered 5 455 new businesses and collected K40.9 billion in taxes.
In an interview on Friday, tax expert Emmanuel Kaluluma said the system is moving at a snail’s pace because of wrong timing of implementation.
He said: “The economy went to bed and is just waking up. People do not go into business, to replenish the Treasury but to earn a living and maximise wealth.
“It becomes automatic for people to be in the tax net through withholding tax scheme.
Kaluluma, a former MRA commissioner for customs and excise and now running EK Tax Consultants, urged MRA to engage in taxpayer education to attract more SMEs into the tax net.
In a written response on Friday, Chamber for Small and Medium Enterprises executive secretary James Chiutsi said since the Covid-19 pandemic, the economic environment has been tough, making it difficult for SMEs to thrive.
“The Block Management System has been perceived as aiming more to benefit the tax collector than the SMEs. Small businesses need more incentives to produce,” he said.
Taxation expert Misheck Msiska observed that the system seems not to work because there are too many SMEs for MRA to trace and most of the transactions are still outside of the formal financial system.
He said: “Moreover, the perception among SMEs is that government and MRA are unfair in their treatment of small businesses.
“There seems to be a cat and mouse chase between taxpayers and MRA, where the taxpayers’ aim is to conceal income and avoid tax obligations.”
MRA Block Management System manager Hlupekile Msyali said in an earlier interview that some of the challenges MRA is facing include lack of cooperation by some taxpayers and high demand for taxpayer education.
The system is also being implemented in neighbouring countries such as Zambia, Tanzania and Uganda, Rwanda and Ethiopia.
The 2022 FinScope Malawi micro, small and medium enterprises (MSMEs) study shows that there are 27 732 taxpayers out of 1.6 million MSMEs in the country.
With the Block Management System, MRA physically identifies and maps taxpayers and breaks them down into manageable blocks to allow the tax collector to visit them in person to educate and encourage tax compliance.
