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Tax revenue target overly optimistic, says World Bank

The World Bank has cautioned Treasury that the 2021/22 National Budget revenue target may not be achieved, especially in view of the prevailing economic situation.

The bank has also said that some of the measures contained in the current financial plan may contribute to a decline in revenue.

The World Bank’s uncertainty on revenue growth is contained in the institution’s 10th edition of the biannual Malawi Economic Monitor (MEM) titled ‘Addressing macro and gender imbalances’, which was published last week.

In the K2.33 trillion 2021/22 National Budget, Minister of Finance Felix Mlusu tabled in Parliament in June, total revenue and grants are projected at K1.271 trillion, representing 12.4 percent of the gross domestic product (GDP).

The budget also projects a fiscal deficit at K723 billion, or seven percent of the GDP.

But the World Bank notes that though tax revenues are expected to increase, between the last financial year and the current one, the budgeted increases are combined with numerous tax measures for the 2021/22 financial year, many of which will reduce the tax intake; hence make achieving the figures even more difficult.

Weighing in on specific revenue measures, the bank has distinguished measures that are bound to increase revenue collection and those it believes will reduce tax revenue.

Said the Bank: “The adjustments in the Pay As You Earn (PAYE) personal income tax brackets have contributed to reductions in tax intake while PAYE income taxes were growing before the adjustments, they have declined since the introduction of the new measures. This followed the PAYE reform in the first-quarter of 2020/21 financial year, which also contributed to a loss in revenues.”

Meanwhile, available data shows that revenue collection underperformed in the first-quarter of this financial year as contributions amounted to a collection of 3.2 percent of GDP far short of optimistic targets

Expenditure is budgeted to increase sharply to 25.1 percent of GDP, driven by a jump in development expenditure, according to the World Bank.

Malawi University of Business and applied Sciences economics lecturer Betchani Tchereni stressed that the major concern hinges on perpetual government fiscal deficits and not the absolute size of the deficit.

On his part, University of Malawi economic professor Ben Kaluwa also observed that the budget was based on optimistic assumptions resulting in ‘de facto’ under budgeting. Meanwhile, public tax collector Malawi Revenue Authority has, however, maintained that it would collect K1.033 trillion, which is a 26 percent growth considering that this fiscus runs for nine months.

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