Malawi faces an economic dilemma to increase its annual tax earnings and reduce domestic spending on allowances.
Addressing these challenges requires the practical solutions to increase domestic revenue generation and accelerate expenditure reductions.
This country has untapped financial resources that can enhance domestic revenue collection and reduce the perennial budget deficits.
Similarly, the country can control its domestic spending through drastic reductions of fuel, travel and phone allowances for senior government officials in all three arms.
The country generates little domestic revenues largely because of ineffective enforcement of fringe benefits and presumptive taxes by the Malawi Revenue Authority (MRA).
Few businesses and individuals comply with fringe benefit and presumptive tax policies in this country. This contributes to low tax collection.
MRA defines fringe benefit as any asset, service or other benefit in kind provided by or on behalf of an employer to an employee.
Apparently, MRA under-collects this revenue in all spheres.
Heads of various institutions, from farms to public service and non-governmental organisations, are entitled to housing, motor vehicle, motor bike, children’s education benefits, but quarterly fringe benefit tax returns are underreported.
For example, Blantyre is home to several executives and managers entitled to fringe benefits. If there is transparency and accountability in remitting quarterly fringe benefit taxes, the city and surrounding communities can generate millions if not billions in quarterly tax revenue.
Extend this to the tea estates of Thyolo and Mulanje that offer fringe benefits to the executive managers, more can be generated in tax.
Another overlooked area is enforcement of presumptive tax, an advance payment of the income tax for the informal business whose annual income falls below K12.5 million.
The small businesses that employ the largest number of people in the country are required to remit presumptive tax.
This tax targets small-scale fishers, dairy farmers and growers of tea, coffee, tobacco, ground nuts, macadamia, banana, pineapple and soya.
It also targets minibus, car and motorbike tax operators as well as tailors, maize mill operators and other small business owners who do not remit any income tax.
Some boat owners with modern fishing nets in lakeshore districts of Mangochi, Nkhotakota, Nkhata Bay, Dedza, Rumphi Salima and Karonga, rent out their equipment at a daily charge of over K50 000. This generates over K1.5 million a month, yet they do not remit any tax.
Similarly, small to medium entrepreneurs with milk cooling plants that collect and store raw milk from smallholder dairy farmers on credit on behalf of milk processors make a monthly profit over K2 million. Strangely, these businesses, which are common in Thyolo, Mulanje, Zomba, Dedza, Blantyre and Chiradzulu, seldom pay presumptive tax.
Low remittance of presumptive tax from the informal sector, the country’s largest employer, shrinks the reported domestic revenues year after year.
Besides, the service has an insatiable appetite for allowances that hamper the country’s economic growth and increase government’s expenditure.
Most of the recurring financial transactions from the national budget fund allowances of fuel, travel and phone for top public servants.
Senior members of the Judiciary, Cabinet ministers, members of Parliament and top government officials receive monthly fuel allowances in excess of 1000 litres.
With a litre of petrol and diesel pegged at K2 600 and K2 800, it means they get a monthly fuel allowance in excess of K2.6 million.
As the country is struggling with low domestic revenue generation, government should consider reducing or halving fuel, travel, internet and phone allowances as a cost containing measure to narrow the national budget deficit.
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Small businesses that employ the largest number of people in the country are required to remit presumptive tax.
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