World Bank Chief Economist for Africa Albert Zeufack has said African countries, including Malawi, need to tread carefully in their attempt to formalise the informal sector to avoid overburdening small businesses with huge taxes.
Zeufack’s sentiments come at a time Malawi has just launched the Domestic Revenue Mobilisation Strategy (DRMS) which, among other things, attempts to bring more people into the tax net by ensuring that the informal sector also contributes into the tax pot.
Speaking on Wednesday during the launch of the latest edition of the African Pulse, Boosting Resilience, the Future of Social Protection in Africa, Zeufack said the best approach is for government to help businesses grow first so that they pay better taxes in future.
Zeufack said the most important thing is for countries to let the small businesses grow, adding that when they grow, they cannot escape the taxation radar.
He said the most important question is for African countries to think of what they could do to ensure growth of small and medium-sized enterprises that are in the informal sector but are just yearning for help to grow and create more jobs.
According to Zeufack, the approach of fiscalising and just seeing informal activities as just an additional source of taxation is counterproductive.
“It is leading to tax evasion. It is leading to the important fact which is the lack of growth for small and entities and small enterprises in Africa.
“African firms have the smallest size of all regions of the world. We need to start thinking of how to make our small firms grow instead of just thinking of fiscalising the informal sector,” Zeufack.
Treasury spokesperson Taurai Banda was not immediately available for comment.
Among other things, the DRMS, launched in December, seeks to increase the domestic revenue to GDP ratio by 5 percentage points of GDP in five years.
According to Treasury, the strategy will help the country achieve the goals set out in the development agenda the “Malawi 2063”, its blueprint the 10-year Malawi Implementation Plan and the Sustainable Development Goals.
As at the end of 2019- 20 financial year, Malawi’s domestic revenue ratio to GDP stood at 13.4 percent which was amongst the lowest in the region, and compared negatively to the sub-Saharan average of 16 percent.