Malawi’s tax-to-gross domestic product (GDP) ratio, currently at 13 percent, is too low to help the country adequately finance its budgetary needs and achieve Sustainable Development Goals (SDGs), a tax expert has said.
In an interview on the sidelines of the National Debt Conference held in Lilongwe last week, Ministry of Finance Revenue Policy Division Chief Economist Wazi Ligomeka said Malawi’s tax-to-GDP ratio falls short of the recommended 20 percent which is required to help countries meet their budgetary needs.
Simply put, a tax-to-GDP ratio measures a nation’s tax revenue compared to the size of its economy, as measured by the GDP.
This ratio provides a detailed view of the nation’s tax revenue and indicates taxation relative to its economy.
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According to Ligomeka, the recommended ratio for Organisation for Economic Co-operation and Development (OECD) countries is 20 percent.
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“To meet the Sustainable Development Goals, you need to collect at least 20 percent of your GDP in tax revenues.
But currently, we are at 13 percent. What this means is we are not able to finance all our needs because we are not collecting as much revenue as we should,” Ligomeka said.
He observed that the problem with Malawi lies in the tax policy and tax administration gaps in addition to revenue losses through Double Tax Agreements.
“If we seal out all these loopholes we should be able to move up and reach 20 percent,” he said.
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According to Ligomeka with the current low tax to GDP ratio, it would be hard for Malawi to stop borrowing to meet the budgetary needs.
According to OECD statistics, the highest tax-to- GDP ratio reported for Malawi since 2000 was 13.2 percent in 2017, with the lowest being 9 percent in 2005.
As of 2022, the tax to GDP ratio for the United States of America was 27.7 percent, according to OECD.
In their communiqué at the end of the National Debt Conference, the country’s civil society organisations said the government should aim to increase its tax-to-GDP ratio from 13 percent to 20 percent to better meet the SDGs.
They recommended a review and renegotiation of the Double Taxation Agreement to prevent tax evasion and ensure fair taxation.
“There should be a comprehensive review of our taxation policies and systems,” the CSO said.
