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Tax contribution to budget on the decline, figures show

The proportion of the domestic budget funded by domestic taxes has continued to decline in the recent past, a situation analysts fear is a cause for concern.

Published figures from the National Planning Commission and the Ministry of Finance and Economic Affairs show that domestic budget funded by domestic taxes has fallen from a peak of 70 percent in the 2017/18 financial year to 48 percent in the 2020/21 financial year.

In an interview on Tuesday, tax expert Misheck Msiska said the situation is worrisome and does not help in reducing the fiscal deficit, but the reduction in domestic taxes has not been as significant as would be expected in the circumstances.

He said: “Of course, with Covid-19 and subsequently the cyclone disaster, the efforts that are reducing public debt have been rolled back. There have been deficits in domestic revenue collections due to reduced economic activity.

“Currently the war in Ukraine is causing increase in food and energy prices, thereby causing inflationary pressure.”

Malawi University of Business and Applied Sciences associate  professor of economics Betchani Tchereni said the inflation situation is not good for the country.

He said: “We must be sure to generate our own resources and run our economy,  but because that is not happening, it becomes difficult and that brings in macro-economic volatility.”

In recent years, lower-than-anticipated tax revenues were the main contributor to total revenues, missing the revised target for the fiscal year.

For instance, in the 2021/22 financial year, revenues totalled 14.6 percent of the gross domestic product (GDP), underperforming the revised target of 15.7 percent of GDP due to a shortfall in income taxes, profits and capital gains.

Although tax revenue collections improved during the financial year to 12.7 percent of GDP, it fell short of attaining the target of 13.2 percent of GDP, which according to the World Bank, was higher than historical collections.

Meanwhile, Treasury has continued to register rising fiscal deficits, which up by 1.6 percent to 8.7 percent of GDP in 2021/22, is the highest in a decade, owing to lower-than-expected revenues and spending overruns.

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