Ministry of Finance, Economic Planning and Decentralisation says tax breaks are costing the Malawi Government more revenue, with forgone collections rising to K811.6 billion in 2024 from about K370.8 billion in 2022.
The Tax Expenditure Report for the 2022–2024 financial years shows that as a share of gross domestic product (GDP), tax expenditure, total tax expenditure, revenue the government forgoes through measures such as tax exemptions, reduced rates, deductions and credits, rose from 3.14 percent to 4.12 percent during the review period.
Treasury said the growth in tax expenditures over the review period is largely attributable to government policy measures designed to stimulate investment, enhance productive capacity, promote job creation, strengthen food security and reduce the cost of critical goods and services.
In a statement accompanying the report, Minister of Finance, Economic Planning and Decentralisation Joseph Mwanamvekha agreed that revenue forgone through tax incentives and exemptions has grown at a faster pace than overall economic output.
He said this underscores the importance of periodically assessing their effectiveness, efficiency and alignment with national development priorities to ensure that public resources are utilised in a manner that delivers maximum benefit to citizens and the economy.
Said Mwanamvekha: “The report has been prepared at a time government is focusing on driving economic recovery and sustainable growth through impactful reforms and fiscal consolidation.
“Going forward, greater emphasis will be placed on strengthening oversight, improving reporting mechanisms and ensuring that tax incentives are well targeted, cost-effective and deliver measurable economic benefits.”
The report, jointly produced with the Malawi Revenue Authority with technical guidance from the International Monetary Fund, shows that tax expenditure linked to import duty exemptions increased from K36.8 billion to K102.9 billion while import excise rose sharply from K12.3 billion in 2022 to K63.7 billion in 2024, according to the report.
During the period under review, the VAT Act contained 174 unique relief provisions. Following assessment against the benchmark VAT framework, 15 provisions were classified as benchmark features of the tax system while the remaining 156 provisions were identified as tax expenditure measures.
The composition of VAT tax expenditure remains concentrated in vegetable products, animals and animal products, agricultural inputs, petroleum products, imports by non-governmental organisations supporting social programmes, and machinery and other industrial equipment.
Collectively, these categories account for approximately 60 to 75 percent of total VAT tax expenditure over the review period.
In an interview on Tuesday, tax consultant Emmanuel Kaluluma observed that while tax incentives are good, in Malawi most of them are abused and are offered without looking at the intention.
“In some cases it is being used for appeasing applicants. In addition there is no political will to stop them,” he said.
Kaluluma, who once worked as Commissioner of Taxes and Excise at MRA, said there is no delibarate effort to examine them to see whether the goals they were introduced for has been realised so that they are reversed.
Tax consultant Misheck Msiska, in a written response on Tuesday, observed that Malawi’s tax incentives have failed to transform the economy because they are not strategically targeted at building a strong manufacturing base to replace imports and boost exports.
He noted that the country’s meaningful incentives are limited to VAT zero-rating, 100 percent capital allowance for manufacturers and a few import duty waivers for sectors such as agriculture, manufacturing, tourism and energy.
“Tax incentives must target production of goods that substitute imports and can compete in export markets,” said Msiska, arguing that incentives are wasted if they are not backed by government support on quality standards, market access and easing business bottlenecks.
Mzuzu University-based economics lecturer Christopher Mbukwa observed that the rapid growth could suggest that the government is distributing too much tax revenue without sufficient evidence that its incentives are creating jobs, driving more investment or contributing to exports.
“The government should provide incentives to only those investors who provide jobs in the country produce locally or grow exports,” he said.
Scotland-based Malawian economist Velli Nyirongo warned that if rising tax expenditures are not matched by higher investment, job creation, exports or productivity, Malawi risks losing much-needed public revenue.
