1.  What is tax?

Tax is a legally imposed contribution to state revenues, which may be imposed on income/gains, property, goods and services of a citizen if certain conditions enumerated in the appropriate tax legislation apply to him.

2.  Why should one pay tax to the Government?

A subject of every state or country ought to contribute towards the support of government as nearly as possible in proportion to their respective abilities; that is in proportion to the revenue, which they respectively enjoy under the protection of the state. The expense of government to the individuals of a great nation is like the expense of management to the joint tenants of an estate, who are all obliged to contribute in proportion to their respective interests in the estate.

3.  What does the government specifically need the tax money for?

Taxation has two main uses. To finance government services such as the provision of health services so as to have a healthy nation; the provision of education so as to eradicate ignorance; the provision of defence, security, law and order in order to create an enabling environment for the creation of wealth through businesses by companies and individuals so as to alleviate poverty and the provision of the necessary infrastructure so as to develop the country economically.

Taxation is also used to influence the economy's activities. There are many different types of taxes and one of the most important decisions facing the Minister of Finance is that of determining what combination of taxes to employ in the budget in order to raise the given amount of money required to meet the budgeted government expenditure for the coming financial year.

4. What is the difference between Direct and Indirect Taxes?

Direct taxes are taxes on income such as income tax or taxes on profits or turnover. They are normally levied on individuals and companies or corporations. The impact and the incidence of the tax fall on one and the same person in that the person who is called upon to pay the tax is the person who ultimately bears the burden of the tax which (the incidence or burden) he cannot transfer to another person. It must be noted that in Malawi capital gains are included in the definition of income so there are no separate taxes on capital.

Indirect taxes are taxes on expenditure such as customs and excise duties and surtax. They are normally levied on traders such as importers and exporters, wholesalers and retailers on whom the liability of the tax falls.

The incidence of the tax can be transferred to the final consumer by the trader by simply recovering the tax paid in the form of customs and excise duty or surtax from the consumer by increasing the commodity price to include such duty or surtax. In this way, the liability and the incidence of an indirect tax do not fall on the same person because in reality the tax is indirectly paid by the final consumer without knowing how much he is paying by way of tax through the increase in price determined by the trader who bears the impact of the tax in the first place.

Unlike in developed countries, in developing countries like Malawi, indirect taxes are the main contributors of central government revenue. But whereas the incidence of direct taxes affects particular individuals and companies who may avoid or evade the taxes, the incidence of indirect taxes on consumers cannot be avoided or evaded even where the trader has evaded the impact of the tax by evading the payment of duty.

This therefore means that a failure to improve taxpayer compliance for direct taxes such as income tax leads to inevitable increases in indirect taxes in order to balance the total tax requirement equation, which, (the increases), the consumers or the general public cannot run away from, in the form of price increases for both essential and non essential commodities and which ultimately leads into high inflation if it is not controlled through fiscal and or monetary policies.

5.  Why then do some people not pay their taxes?

While some Malawians deliberately opt not to pay their taxes, many Malawians do not know about taxpayer's rights and obligations, let alone the importance of their tax contributions to national economic development. Malawians cannot expect their country to be developed through handouts donated from other countries.

Consulting competent tax legal experts such as professional accountants may be the answer where one is not conversant with taxation issues, and it may prove cheaper than remaining ignorant and doing nothing about it.

Direct taxes are governed by the Taxation Act - chapter 41:01 of the Laws of Malawi whereas indirect taxes are governed by the Customs and Excise Act - Chapter 42:01 of the Laws of Malawi. Copies of the Acts may be purchased from our Regional Offices and the Head Office in Blantyre.