Malawi’s tax-to- Gross Domestic Product (GDP) ratio has been decreasing recently, with figures falling by 1.8 percentage points from 12.6 percent in 2020 to 10.8 percent.
This is according to the Revenue Statistics in Africa 2023 Report published by the Organisation for Economic Co-operation and Development (OECD).
However, the average tax-to-GDP ratio for the 33 African countries included in the publication remained unchanged at 15.6 percent in 2021.
“Since 2010, the tax-to-GDP ratio in Malawi has decreased by 0.5 percentage points, from 11.3 percent to 10.8 percent. The highest tax-to-GDP ratio reported for Malawi since 2000 was 13.2 percent in 2017, with the lowest being nine per cent in 2005.
GDP ratio in 2021 was lower than the average of the 33 African countries in 2023 by 4.8 percentage points.
“The highest share of tax revenues in Malawi in 2021 was contributed by personal income tax at 32 percent, while the second-highest share of tax revenues in 2021 was derived from taxes on goods and services other than VAT at 24 percent,” the report reads.
In an interview, economist Velli Nyirongo said Malawi’s relatively low tax-to-GDP ratio significantly limits its fiscal capacity, hindering the government’s ability to fund essential public services and investments.
Nyirongo added that this constraint poses a considerable challenge in addressing critical development issues such as poverty, infrastructure and healthcare.
“To increase tax revenue, Malawi should consider expanding its tax base or improving tax collection efficiency. However, implementing these measures requires careful consideration to avoid negative e c o n o m i c consequences.
“Expanding the tax base could involve fostering the growth of new industries, such as tourism, which can serve as a lucrative source of tax revenue,” he said.
Nyirongo added that a more diversified tax structure could mitigate the current reliance on a few key tax sources.
According to the economist, introducing new taxes or reforming existing ones could capture more taxable income and consumption.
“The government might also explore the possibility of taxing land and property sales, although this would likely require legislative changes,” Nyirongo said.
Another economist, Marvin Banda, said that the informal nature of the economy means that revenue collection is hampered by collection leakages, low tax compliance, poor stakeholder perception of the tax system, gaps in institutional capacity for revenue mobilisation and low non-tax revenue collections.
Banda added that non-tax revenues have historically underperformed, with 2013-14 being the best year in the last decade, recording 2.4 percent of GDP.
“The unpopular truth is that Malawi has one of the lowest tax-to-GDP ratios in Africa. Malawi’s tax revenue structure means that the cost of business is elevated, as well as the fight against high interest rates and inflation,” Banda said.
In a recent interview, Malawi Revenue Authority spokesperson Steven Kapoloma called upon all taxpayers to continue contributing their fair share of taxes voluntarily in order to optimise revenue collection.
The World Bank deems a tax-to-GDP ratio of 15 percent as the minimum threshold required for the country to provide basic goods and services, while the United Nations pegs it at least 20 percent of Malawi’s GDP if the country is to meet Sustainable Development Goals, among others.
