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Business environment may worsen—EY

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Ernist and Young (EY), an auditing firm, has warned that the operating environment may get even tougher for businesses as government tries to implement the 2016/2017 national budget which will be financed primarily by domestic resources.

EY says it anticipates that the business environment may be challenging to tax compliant business operators in the country as pressure mounts on the government to mobilise resources to meet 73 percent of the budget which it [government] expects to be financed from local resources.

Presenting the 2016/2017 financial plan, Finance Minister, Goodall Gondwe, said the budget seeks to increase domestic resource mobilisation so that tax revenue is in tandem with the rate of growth in nominal Gross Domestic Product.

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In total, government expects donors to provide only 19.7 percent of the resources required for the implementation of the K965.2 billion budget while K708.8 billion will be sourced from taxes collected within the country.

“Mr Speaker, Sir, as I indicated, the estimate for tax revenue, as projected by the International Monetary Fund (IMF), is higher than what was suggested by the Malawi Revenue Authority (MRA), which was about K698.0 billion. In my view, although planning on the basis of the optimistic IMF projection could create the risk of a higher domestic financing outturn in the event of a shortfall in actual collections, it seems prudent to argue that MRA has the capability to collect more revenue than it currently does as a proportion of GDP.

MRA is, therefore, being requested to rise to the needs of the country at this crucial moment when the enhancement of domestic resource mobilisation is critical for the attainment of our national priorities,” Gondwe said.

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In his presentation of the EY Tax Budget review 2016, Director of Taxes at EY, Misheck Msiska, said it is not immediately clear what tax review measures government plans to undertake as it seeks to broaden the tax base and improve tax administration.

“Previously, tax revenue accounted for about 60 percent of the budget, while donor grants covered 40 percent,” said Msiska.

Speaking on the budget environment, Associate Director of Assurance and Advisory at EY, Lawrence Dururu, observed that most key indicators have not been performing well over the four year period from 2013.

He said it was not immediately clear how the government intends to break the vicious cycle.

“The exchange rate will worsen further because of the trends we are witnessing where the kwacha depreciates even in the middle of the tobacco marketing season and as we import more, we experience more imported inflation,” he said.

He further noted that the strategic objectives presented by Gondwe do not show Malawi moving away from an agricultural based economy.

In his presentation, Gondwe said some of the strategic policy aspects of the budget include; climate change mitigation, creation of a Greenbelt Authority, addressing food security, boosting rural incomes, reforming the Fisp, strengthening national development planning and national registration.

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