Expert tips government on broadening Malawi’s ‘narrow tax base’

An associate professor of economics, Malawi University of Business and Applied Sciences (MUBAS)-based Betchani Tchereni, has tipped key technocrats responsible for tax revenue in the country to consider working out modalities on how they can broaden the tax base saying the one that is there is “too narrow and a burden to the working class.”

Betchani Tchereni

Tchereni who is acting deputy principal at MUBAS—formerly known as The Polytechnic—said, during a Times Television’s exclusive interview on Saturday, monitored by Nyasa Times, that “Malawi has good tax measures but the tax base is very narrow.”

He said government needed to expand its tax territory by, among others, penetrating into the informal sector which is “grossly untapped.”

According to him, government was only concentrating on the working class and yet they were multimillionaires across the country who were not paying taxes on the pretext that they were not formally employed and, therefore, were poor.

As of July 2017, Malawi had only 138 000 civil servants on the payroll less than a quarter of the country’s population presently at 17.5 million.

More than half of the population are youths, most of whom are in the untaxed informal sector.

He said: “Those that are paying taxes are very few. It is teachers, nurses and those that are working in government or formally employed that are targeted for taxes. And yet there are thousands of people out there in the informal sector who are earning more than those that are formally employed but are not taxed accordingly because they claim they are poor.”

Tchereni, whose research interests are in energy economics that partly focuses on the relationship between available resources and creation of jobs, said it was time technocrats in government systems concerned with collection of revenue to get creative and start tapping from the informal sector.

“We are collecting too little and stealing to much from the same,” Tchereni, who has also consulted for the South African government on economic matters whilst he was advancing his studies and teaching there, said.

On whether Malawi was doing well economically, the associate professor said present indicators showed the country was not doing very well.

“Theoretically we are good. We are good at planning but not as far as implementation is concerned. For instance we have always talked of mechanizing our agriculture on paper and yet we are still stuck with subsistence agriculture. We need to mechanize and industrialise,” Tchereni said.

He also advised that for the country to change its economic status quo for the better, all Malawians from the lowest level to the presidency needed to sacrifice.

“Often we forget that our visions are not just for government but for all of us. We all must sacrifice in one way or another from the villager in the remotest part of the country to the president,” said Tchereni.

In March, this year Tchereni had also tipped government to lower taxes in order to curb soaring smuggling following a sharp rise in smuggling of items like wheat flour, cooking oil, fizzy drinks and wrappers, passing through Karonga, Mulanje, Ntcheu, Dedza, Thyolo and Mchinji districts.

A survey indicated that flour and cooking oil were commodities that were being smuggled the most due to the introduction of Value Added Tax (VAT) on the two commodities.

“Government needs to consider broadening the tax base while lowering tax rates. In doing so, people may not be attracted to smuggling. It is when the cost of smuggling is lower than the cost of bringing goods the right way that people resort to smuggling,” Tchereni had observed.

He had also asked the government to tread cautiously on the matter.

“Smuggling happens mainly because people are trying to avoid what may be deemed as punitive tax rates. This is mostly for a predominantly importing country such as Malawi where the government raises a big chunk of its revenue from import taxes because that’s where a huge economic activity is taking place.

“For traders to be competitive, they then try to reduce costs by smuggling so that they can also avoid income tax and VAT when they reach their respective shops,” he said.

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