The World Bank has expressed concerns that Malawi's recent tax measures are increasing the cost of doing business in the country. According to the bank's latest Malawi Economic Monitor, levies on bank and mobile-money transfers, higher value-added tax (VAT), and the minimum alternate tax on turnover are putting additional pressure on corporate liquidity. This comes at a time when businesses are already grappling with foreign exchange shortages, unreliable electricity, rising input costs, and weak demand.
The World Bank noted that businesses are facing additional compliance costs from electronic fiscal devices and e-invoicing. Small and medium-sized enterprises (SMEs) are particularly concerned about the acquisition and maintenance costs, limited digital skills, and inadequate system integration. The bank warned that without addressing these issues, revenue-focused measures alone risk having a detrimental effect on short-term expansion for the private sector.
The tax changes, which took effect on January 1, 2026, aim to widen the tax base, increase progressivity, and raise revenue from previously under-taxed activities. The measures include an increase in VAT from 16.5 percent to 17.5 percent and a rise in the Paye tax-free threshold from K150,000 to K170,000, alongside marginal rates of 30 percent, 35 percent, and 40 percent for higher-income earners. The package also introduced levies on bank and mobile-money transfers, a minimum alternate tax on turnover for large firms, and higher withholding and capital gains taxes.
The Malawi Confederation of Chambers of Commerce and Industry (MCCCI) had warned that the cumulative effect of the measures could strain businesses despite their contribution to revenue mobilisation. In its 2025 Annual Economic Performance and Business Review, MCCCI said the changes would increase operating costs, compress cash flows, and potentially reduce firms' ability to reinvest and expand.
The MCCCI also noted that formal businesses already operating under foreign exchange shortages, high interest rates, and weak demand could face further pressure on profitability, potentially discouraging investment and formalisation. However, Minister of Finance, Economic Planning and Decentralisation Joseph Mwanamvekha defended the measures, saying the government remained committed to dialogue with stakeholders.
Mwanamvekha stated that the government would monitor the impact of the tax changes closely to ensure that they achieve their intended objectives without undermining business confidence or economic activity. The World Bank emphasised that successful implementation of the reforms would be critical to limiting the early side effects, with gradual rollout, technical assistance, and stakeholder engagement needed to maximise their longer-term benefits.
The World Bank's warning comes as the Malawian government seeks to boost revenue and address economic challenges. The country's businesses are already facing significant challenges, including foreign exchange shortages, unreliable electricity, and weak demand. The government's efforts to widen the tax base and increase revenue are crucial, but the World Bank's concerns highlight the need for careful implementation to avoid harming the private sector.
Key points
- The World Bank warns that Malawi's new tax measures increase the cost of doing business, putting pressure on firms facing foreign exchange shortages and unreliable electricity.
- The tax changes aim to widen the tax base, increase progressivity, and raise revenue from previously under-taxed activities.
- The government has defended the measures, saying it will monitor their impact and engage with stakeholders to ensure successful implementation.
