Another lesson in how not to expand the tax base.

The Micro Small and Medium Enterprise Order (2020) is being touted by some as a way for MSMEs to benefit from Government procurement.

But whats not being talked about are the far reaching effects that may result from the correct and totally lawful business registration which the order requires.

Isn’t it the case that as soon any MSME registers as a business, the taxman will at that point be entitled to show up, arms akimbo, sniffing for any tax kwachas that may be lurking around undeclared?

Jokes aside, my point is there’s no guarantee that every single business that registers will benefit from the order. This is why in some countries there is always an option to run micro businesses as sole traders where it is in fact the person running the business who is liable for any taxes that may be due.

Malawi currently has a small tax base, and a small private sector. And while on the surface it may appear like a good idea to try and bring into the formal economy as much as possible of the informal economy, in practice that only works when people do actually have significant resources, which is not the case now, for the majority of people in the informal economy – many of whom live hand to mouth. Already, many small businesses complain that they are overburdened by taxes.

What the Government should have done is to focus on the creation of new large corporate entities… beyond Public – Private Partnerships. I mean organisations that can process goods at scale and export large quantities abroad, at a profit.

You can only squeeze so much profit out of a starving donkey which the Malawian tax base currently is. If you push too hard, and burden the donkey with more than it can take, that donkey will crumble and faint. And you will lose out.

A wiser move is to bring additional resources from outside the country. Our leaders are not seeing the bigger picture in this whole equation. The money is not in asking Malawians to pay yet more taxes.

And for those of you saying it would kill local small enterprise, no it would not. Because those corporate entities can actually work with those small enterprises you mention, helping them in more ways than one, minimally, saving them money. Our leaders need to start thinking like business men/ women.

Let me give you a simple example. Suppose the Government of Malawi (GOM) started a shipping company, and bought 2 Cargo Ships. Instead of the local shipping companies paying British or Italian or Greek Ships, GOM can enter the market at attractive terms, so that those local companies instead use the GOM Cargo Ships, saving a bit of money that way. The insurance of the Ships will be provided by local companies. The trucks which collect the containers from the port will come from Malawi… the whole chain will employ Malawian staff … even some of the food, and generally provisions on the ships for the staff who will be working on deck in the weeks that the Ships navigate between the European / American/ Asian ports and African ports can be cooked or prepared by Malawian companies…

How can all that be a bad thing?

That’s just one example in the logistics field which would give GOM millions of dollars in additional revenue, if you consider the annual earnings of other shipping companies that operate between Europe / US and Africa.

It’s a model Ethiopia (and many other countries) uses quite successfully with their airline and their state owned telecom company. We can learn a lot from them.