Unravelling the Direct Tax Puzzle in Malawi

Abstract

Malawi, like many countries in Africa, is a low-income country with a tax administration that operates below international standards, and with a larger informal sector that could provide a substantial source of revenues than other countries in sub-Saharan Africa, especially from direct taxes. The chapter explores this issue by updating, validating, and testing the colonial legacy theory as suggested by Mkandawire (2010), and reviews the colonial and post-colonial tax issues for Malawi and other countries in SSA to answer two interconnected questions: (a) What are the reasons for Malawi’s current high reliance on direct tax? (b) How far back in history does Malawi’s reliance on direct tax extend? The findings show that Malawi’s history, its economic structure, and the close surveillance of major taxpayers by the Malawi Revenue Authority (MRA) significantly contribute to explaining the country’s high reliance on direct taxes relative to other SSA countries.