Malawi loses K970bn from tax incentives in five years-ActionAid

Malawi  has lost almost K970 billion in five years through  tax incentives given to foreign investors  such as   in a bid to attract investment into the country,  this is according to a report by ActionAid seen by Nyasa Times.

The ActionAid report released in June indicates that from 2008 to 2012, in Malawi alone more than US$3 billion (K975 billion) “was foregone”, and that this is almost exactly the same amount as the corporate income tax raised during that period meaning that almost half of the country’s revenue is lost through such tax lapses.

It comes after United Nations Special Raportuer, Olivier De Schutter,  who was in Malawi , rubbished Kayerekera uranium mine deal between Malawi and Australian Paladin Mining Company saying the southern African country has had a raw deal that is robbing the poor.

The UN Raportuer said the uranium mining deal was one of the investments in Malawi through which the country is losing resources that could otherwise make a difference in food security and other pro-poor initiatives. He said in the life span of the mine Malawi is expected to lose almost US$281 million.

ActionAid Country Director, Martha Khonje: Ordinary people contribute to tax
ActionAid Country Director, Martha Khonje: Ordinary people contribute to tax

The ActionAid  report titled ‘Giving Us a Break: How Big Companies are Getting Tax Free Deals’  indicates that at global level developing countries combined lose between US$120 and US$160 billion in revenue a year through tax avoidance and that almost US$138 billion dollars in revenue could be raised every year if the developing countries eliminate some corporate tax incentives.

ActionAid International, has since urged Southern African Development Community (Sadc) governments currently meeting in Lilongwe to urgently review and remove such harmful tax incentive which it calls the trend a global tax scandal.

Speaking to reporters ahead of the Sadc Heads of State Summit which opens on Saturday, ActionAid Africa Advocacy Coordinator Henry Malumo said he appreciates the efforts being made in the Sadc region on its attempts to come up with standard guidelines on investors, but he said there is need to speed up the process.

“ We are calling on the new Chairperson President Joyce Banda to demonstrate renewable action on this.”

“It is immoral to give tax holiday to a multi-million dollar foreign company while denying the same to a local company,”  Malumo said.

He added: “We feel that Sadc is not poor, it is too wealth and has got all the resources unfortunately we are losing out because the investors are exploiting the region.”

ActionAid Malawi Country Director Martha Khonje said it was sad that despite recent increases in foreign investment, there has not been a significant increase in corporate tax contribution to the national budget which is currently at 16 percent.

“The bulk of our taxes come from value added tax or custom duty. It is basically the ordinary people contributing more to the budget,” she said.

Khonje said at the rate the country is losing out on the taxes it would not be able to achieve its development goals.

And the  UN envoy  bemoaned that due to illicit financial flows, tax envasion as well as tax incentives that the country offer to both domestic and foreign companies currently Malawi was failing to get maximum use of its resources.

De Schutter said that revenue losses from special tax incentives to Paladin Africa Mining alone are estimated at almost K67 billion (US$205 milion) since the mine started its operations and could reach almost K92 billion (US$281 million) over its13-year lifespan.

“Paladin alone is costing the budget more than US$20 million (almost K8 billion) a year in taxes,” he said.

He added: “I am convinced that unless combined with a comprehensive enhancement and optimisation of tax revenue, current macro-economic reforms may not have substantive positive impacts. There is need for
Malawi to examine its national tax laws and policies towards preventing illicit capital flight. As mining develops, Malawi can simply not afford business-as-usual.”

De Schutter said it is estimated that the country has lost over 10 percent of its growth domestic product (GDP) to illicit outflows and tax evasion over the period 1980 to 2009.

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