The Economics Association of Malawi (Ecama) has expressed concern over the growing shadow or underground economy, saying it is costing government in potential revenues. Ecama data show that the underground economy, which comprises economic activities happening outside formal government regulation and taxation, has grown from 17.3 percent of the gross domestic product (GDP) between 1972 and 2000 to an estimated 46.81 percent of GDP and seven percent of potential tax revenue as of 2025 Malawi’s GDP closed at $14.9 billion (about K26 trillion) in 2025, according to the International Monetary Fund (IMF). This means that a potential tax of seven percent of GDP translates to $1.04 billion (about K1.8 trillion).
In an interview, Ecama president Bertha Bangara-Chikadza said the growth of the underground economy has negatively affected tax collection as the economy allows many businesses and individuals to operate outside the formal system, making it easier for them to avoid paying taxes. She said: “The underperformance in tax revenue brought about by the underground economy erodes the tax base. “There is a need to introduce penalties for failure to formalise and operationalise the presumptive taxes, which government reintroduced in 2021.” Bangara-Chikadza, who teaches economics at the University of Malawi, called for strengthening of the one-stop-centre initiative where officials from the Registrar General, Malawi Revenue Authority (MRA), Department of Immigration and Citizenship Services, National Registration Bureau and councils are housed to speed up the process of formalising activities that end up in the underground economy.
MRA, which had projected to bring 1.3 million small and medium enterprises (SMEs) into the tax net through the system has been facing hurdles as most of the targeted SMEs are working on re-establishing themselves and surviving. MRA data show that as at February 2024, out of an estimated 1.6 million SMEs in the country, the system had registered 5 455 new businesses and collected K40.9 billion in taxes. Treasury has been working on enhancing government’s resource mobilisation drive as the national budget continues to face significant pressure from statutory expenditures, notably wages, salaries, interest rates and pension obligations, which account for more than 90 percent of domestic revenue in the current fiscal year, leaving minimal fiscal space for discretionary spending.
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In the 2025/26 Mid-Year Budget Review Statement presented in Parliament last November, Minister of Finance, Economic Planning and Decentralisation Joseph Mwanamvekha announced a number of taxes too boost government revenue at a time the budget continues to face funding pressures. He said Treasury remains committed to continuous dialogue with all stakeholders as government implements those tax measures while monitoring the impact to ensure that they achieve their intended objectives without undermining business confidence. Economist Christopher Mbukwa, who teaches at Mzuzu University, said Treasury can broaden the tax base by taxing the digital economy as commerce is shifting online with 3.95 million Internet users at the start of 2025 to capture the whole digital economy.
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