The taxable period for income tax is a 12-month period ending on 30 June of each year. For businesses whose year-end is 31 July and 31 August, the applicable tax year-end is the preceding 30 June, while all the years ending in the subsequent months have the following 30 June as a year-end.
Any person carrying on a business in Malawi becomes potentially liable for tax and has to apply for tax registration. Where the person that is eligible for registration fails to register, the Commissioner General is mandated to proceed with the tax registration.
Income tax returns are due within 180 days after the end of the financial year. There is now legislation that provides for electronic filing of tax returns.
Payment of tax
A taxpayer has, at the beginning of the year, to estimate the income for the year and file a return of the estimated income and related tax. The return has to be filed within 25 days of the beginning of the year.
Tax is payable in quarterly instalments within 25 days of the month following the end of the quarter, with the balance of the tax being paid upon submission of the return.
Taxes can be paid through bank certified cheques but it is advisable to pay electronically through commercial banks.
Penalties and interest
- There is a 20% penalty on any overdue tax liability plus interest at the prevailing bank lending rate plus 5% per annum for each month or part of the month that the tax remains unpaid.
- Penalties for offences are MWK 200,000 for the first month plus an additional MWK 50,000 for each month or part thereof where a person:
- fails to comply with any notice served by the Commissioner General under the Taxation Act
- gives incorrect information or omits any relevant information from any statement required to be made to the Commissioner General
- fails to keep records, books, or accounts required to be kept
- fails to comply with provisions requiring the appointment of a public officer of the company, or
- fails to furnish any other person with a certificate of the extent of the examination of the records in preparing the schedules supporting any return.
- Penalties for failure to or defaulting to file prescribed returns are MWK 300,000 for the first month and MWK 50,000 for each month or part thereof that the failure continues.
- Penalties for omissions, wrongful deductions, and claims, as well as failure to withhold and remit tax on income due to persons not resident in Malawi, to 20% in the first month or part thereof and interest at the prevailing bank lending rate plus 5% per annum for each month or part of the month that the tax remains unpaid.
- Any intent to defraud is subject to a penalty of the greater of MWK 200,000 and twice the difference between the tax charged and what would have been charged.
- Assisting in making an incorrect return is subject to a penalty of MWK 200,000 in the first month or part thereof and an additional MWK 10,000 for each month or part thereof that the penalty remains unpaid.
- There are MWK 1 million penalties for obstructing officers, forceful rescue of seized property, physical assault of officers, and inciting a person to refuse to pay tax.
- There are penalties for failure to complete documentation in compliance with WHT regulations.
- There are also penalties and interest for failure to remit the WHT and PAYE, as well as fringe benefits tax.
Interest on outstanding tax liability is charged at the commercial lending rate plus 5% per annum.
Tax audit process
The target for the tax authorities is to audit 30% of the taxpayers in any fiscal year. This translates to approximately three years per audit cycle.
Statute of limitations
There is no statute of limitations in Malawi, except for the mandatory seven-year period for keeping records.
Topics of focus for tax authorities
The tax authorities have recently focused on transfer pricing and have consequently established a unit responsible for this. All multinationals are under scrutiny to check if they are dealing at arm’s length with related entities.
Commissioner General's power to increase taxable income
The Commissioner General is empowered to increase the taxable income and liability of a taxpayer when of the opinion that the main purpose or one of the main purposes of a transaction was the avoidance or reduction of tax or where the main benefit that might have been expected to accrue from a transaction was the avoidance or reduction of tax.