From K75.2bn to K50bn: The VAT Decline MRA Doesn’t Want to Talk About

Before the Electronic Invoicing System was rolled out as MRA’s flagship revenue-enhancement instrument, the baseline matters. How much VAT was MRA collecting every month? Was it K20 billion, K30 billion, K40 billion?

If EIS is truly revolutionizing revenue collection, then the public deserves a transparent before-and-after comparison rather than a premature victory lap over a single month’s performance. Through Taxpayer Education Manager Wadza Otomani, MRA told Zodiak Online that it collected over K50 billion in VAT in May alone. At first glance that sounds impressive.

But economics is about context, not headlines. I am a bit shaken and surprised when I compare an average collection of K75.2 billion under Dr Lazarus Chakwera against a K50 billion VAT collection in May under Peter Mutharika, who is now supposed to boast. That is a 33.51% month-on-month decline in real terms.

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If compliance is truly high and EIS is capturing every transaction, then Malawians should be asking, why are VAT receipts falling when prices, inflation and the kwacha depreciation should be pushing them up? Where is the revenue leakage occurring? Are we seeing diversion of funds to officials through the old DPP syndrome of corruption and misreporting of economic data?

In economic terms, if nominal GDP and price levels have risen but VAT buoyancy has collapsed, then either the tax base has shrunk, compliance is overstated, or revenue is being siphoned before it reaches the Treasury. That is the practical question MRA must answer, because a falling VAT-to-GDP ratio during a period of high inflation is a red flag, not a success story. This distinction is critical.

Between 2020/21 and 2024/25, annual VAT collections increased from K363.5 billion to K902.9 billion, a rise of approximately 148 percent. Yet over the same period Malawi also experienced significant inflationary pressures and major currency devaluations. Since VAT is charged as a percentage of price, higher prices automatically generate higher VAT receipts even if the quantity of goods sold remains unchanged.

For example, if a product rises from K100,000 to K200,000 because of inflation or exchange-rate movements, the VAT collected doubles despite no increase in production or consumption. That is why the real question is not whether MRA collected K50 billion in VAT in May. The real questions are how much of the increase is due to EIS, how much is due to improved compliance and enforcement, how much is due to inflation and higher prices, how much is due to currency depreciation, and how much reflects genuine growth in production, trade and consumption. Without answers to those questions, celebrating a single month’s VAT collection risks confusing nominal revenue growth with real economic progress.

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