‘Access to finance remains a major obstacle to growth of domestic investment in Malawi’

* Government should introduce a preferential corporate tax of 25% for a period of up to 3 years upon listing when a company raises new capital for the business — i.e. an offer for subscription

By Duncan Mlanjira

There are currently only 16 companies that have been listed on the Malawi Stock Exchange (MSE) since its establishment in 1994 and this places the MSE as one of the smallest in the southern African region in terms of the number of listed companies.

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Thus, there is a need to incentivize firms to enlist on MSE, as access to finance remains a major obstacle to growth of domestic investment in Malawi — says Malawi Confederation of Chambers of Commerce and Industry (MCCCI) in its contribution to the 2024-25 pre-budget consultation meeting on Monday which Minister of Finance & Economic Affairs, Simplex Chithyola Banda convened with essential stakeholders.

Held at Sunbird Mount Soche Hotel, the MCCCI — which is the apex body of the private sector — proposes that government should introduce a preferential corporate tax of 25% for a period of up to 3 years upon listing when a company raises new capital for the business — i.e. an offer for subscription.

Stamp duty on trading of securities should be removed as this has a negative effect on trading frequency.

“Interest income arising from investments from pension funds and life insurance is subject to withholding tax (WHT) but interest income payable to banks enjoys exemption from WHT.

“Government should consider providing the same exemption status banks benefit from WHT deductions on interest income for life insurance investments. Government should consider exempting interest earned on pension investments from WHT as the tax rate is 15%.

“There should be a special schedule in the VAT Act providing direction and practice notes on VAT on banking services, which should be properly defined with reference to the practical situation on the ground.

“The theoretical nature in which the amendment has been crafted creates problems of implementation and practice. Provide a schedule in the Taxation Act to deal specifically with the life insurance business and how income, expenditures, and losses would be recognized for tax, rather than using the generally deductible provisions for this highly specialized business.

“Define expenditure related to the generation of dividends, with the view that generally one does not need to incur costs to earn a dividend. Dividends are idle income resulting from investments in shares.

The MCCCI observed that cost of transport has been a major obstacle to doing business in Malawi for a number of years and commenced the government on its efforts to improve the sector through some initiatives that include National Single Window; One-Stop Border Post; rehabilitation of roads (Lakeshore Road — which is mostly used by trucks from the northern corridor) and railways.

However, there areas need special attention in the 2024–25 budget, such as fast-tracking the rail and road infrastructure projects that are currently being implemented and additionally to improve air transport infrastructure.

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In the building and construction industry, the MCCCI highlighted that the increase in the withholding tax rate for contractors and subcontractors, from 4% to 10% in the 2023–24 budget, had a negative impact on the sector, which operates on smaller margins  therefore, the 10% withholding tax should be revised downward.

It was also observed that the telecommunication costs in Malawi continue to be high and this can be attributed to taxes in the sector among many other factors.

Therefore, MCCCI proposes that to improve the sector, government should consider revising taxes such as 15% non-resident tax charged on Internet and 10% excise tax charged on data services.

Further specific budget proposals include the removal of the requirement for manufacturer authorization upfront for public procurement until the point of contracting, saying: “This way, the inclusion of indigenous companies in Malawi will be accelerated.

“Government should reduce the payment period taken to pay SMEs for their services, which is extremely long, thereby crippling them financially. This also results in government suffering higher prices as companies overcharge to cover such delays.”

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While the corporate world contributes to the national budget through various taxes, some of which is allocated to the provision of security, MCCCI pointed out that most companies still seek the services of Malawi Police Service to boost security in areas they operate which comes at a cost.

Thus it is being proposes the introduction of a rebate on the cost incurred for armed police guards and patrols to provide security and also that the government should reconsider tax incentives for companies that employ a large number of employees.

“This will incentivize companies to employ more people, and the discount can be recovered by the government through pay-as-you-earn (PAYE) for the extra workers.

“The taxation system should provide room for advance rulings when it comes to ambiguous provisions of the taxation act on new projects, products, and agreements of taxpayers. These rulings should be binding between the taxpayer and the government and immune to subsequent legislative changes.

Present at pre-budget meeting included Minister of Information & Digitalisation, Moses Kunkuyu; Malawi Revenue Authority (MRA) Commissioner General, John Biziwicki; Director General of National Planning Planing, Thomas Munthali; MCCCI president, Lekani Katandula, BAM president Zandire Shaba, among other high profile delegates.

Other presentations were made Malawi University of Business & Applied Science (MUBAS); Institute of Chartered Accountants in Malawi (ICAM) and Bankers Association of Malawi (BAM).

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