Malawi, African peers called to diversify tax bases

Malawi and its African peers will continue struggling to boost tax revenues unless they diversify sources and improve value-added tax (VAT) collections, the African Tax Administration Forum (Ataf) has warned.

Ataf head of domestic tax and capacity enhancement Emeka Nwankwo, speaking in Salima during the launch of the African Tax Outlook and Validation Data Preliminary Analysis, said the other factor stunting the growth of tax revenues is over reliance on pay as you earn (Paye) among tax authorities across the continent.

Faulted over-reliance on payee: Nwanko. | Ntchindi Meki

He said Africa’s tax-to-gross domestic product (GDP) ratio has risen by only one percentage point from 14 percent in 2011 to 15.1 percent, a development he said is a cause for worry. Malawi’s tax-to-GDP ratio stood at 12.5 percent in 2023, below the continental average.

“The current African Tax Outlook shows that we have had about one percentage point movement since 2011 in terms of tax-to-GDP ratio on the continent. It currently sits at an average of 15.1 percent,” Nwankwo.

He said that about 80 to 90 percent of personal income tax in Africa comes from Paye deducted at source from salaried workers.

Nwankwo said the imbalance raises questions about whether informal traders, self-employed people and high-net-worth individuals are contributing their fair share.

He said: “What are we doing to bring those outside employment into the income tax net, including high-net-worth individuals and those in the informal economy who are within the threshold of paying tax?”

Malawi has faced challenges to expand its tax base with informal employment accounting for 93 percent of the workforce, up from 85 percent in 2013, according to the 2026 Labour Market Profile by the Danish Trade Union Development Agency.

The figure is more than double the Southern Africa average of 39 percent, highlighting the difficulty of bringing businesses and workers into the formal tax system.

Malawi Revenue Authority (MRA) has previously warned that taxing informal businesses can be costly to administer, while the revenue collected from small enterprises may be low.

In her remarks yesterday, MRA director of tax investigations Stella Manyenje said the African Tax Outlook provides reliable data to guide decisions on compliance and identify areas requiring intervention.

“The platform is providing us with reliable data where we can base our decisions if we want to take a policy direction that is going to help us improve taxpayer compliance,” she said.

Manyenje said MRA was seeking funding and technical support from Ataf to develop an integrated tax administration system aimed at simplifying services for taxpayers.

Economics Association of Malawi (Ecama) president Bertha Bangara Chikadza said the underground economy is eroding the country’s tax base, calling for stronger enforcement of formalisation requirements and presumptive taxes, which the government reintroduced in 2021.

“There is a need to introduce penalties for failure to formalise and operationalise the presumptive taxes,” she said.

Bangara-Chikadza, who also teaches economics at the University of Malawi in Zomba, also called for strengthening the one-stop-centre initiative which brings together the Registrar General, MRA, Department of Immigration and Citizenship Services, National Registration Bureau and councils to simplify business formalisation.

Economist Christopher Mbukwa, who teaches at Mzuzu University, said the government could also expand its reach by taxing the digital economy as more commercial activity moves online. Malawi had 3.95 million internet users at the start of 2025.

VAT collection presents another opportunity to widen the tax base, with figures from Ecama showing that the tax contributes 14 percent of Malawi’s total tax revenue, compared with 35 percent in sub-Saharan Africa and 51 percent globally.

MRA is also implementing compliance measures, including Msonkho Online, the Electronic Invoicing System (EIS) and data-driven risk analysis.

The EIS, introduced in May to improve VAT collections, initially faced resistance from some traders over compliance costs and privacy concerns.

The reforms follow an increase in the VAT rate from 16.5 percent to 17.5 percent in January, a change that has contributed to higher prices for goods and services.

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