MEJN – Who are we? MEJN is a coalition of civil society organizations committed to championing participatory economic governance for poverty reduction MEJN’s thrust is to empower ordinary citizens to enable them participate effectively in public policy processes and demand performance accountability from duty-bearers

Our work related to tax justice In partnership with Action Aid Malawi, MEJN is implementing a project entitled “Promotion of Pro- Poor Taxation Systems in Malawi”. In partnership with AFRODAD, MEJN produced a report called “The Revenue and Benefits of Foreign Direct Investment in the Extractive Industries in Malawi” As a CSO MEJN has a role to ensure that the budgetary resources are allocated in a manner that creates equitable distribution of economic opportunities and enhances the delivery of public services to the citizens particularly the poor and vulnerable.

STUDY ON THE PRO-POOR TAXATION SYSTEMS IN MALAWI Hypothesis “Tax is the best source of sovereign revenue that gives the state power to invest in pro-poor sectors and that tax must be progressive and therefore just and must be progressively spent. The current tax regime propagates further injustice as it squarely puts the tax burden on the poor”.

STUDY FINDINGS The poor in Malawi are mostly affected by the following taxes: Value Added Tax (VAT). Domestic Excise Duties. Payroll, those under employment. That for the period between 2007/08 to 2011/12 fiscal years, VAT has been the highest contributor to the national budget. That Payroll tax has been the second highest contributor to the national budget.

STUDY FINDINGS.....CONT’D That Corporate tax has been the least contributor to the national budget for the same period. That the data analysis shows that indeed, Malawi tax system burdens the personal taxpayers as compared to corporate taxpayers.

STUDY FINDINGS....CONT’D That the least revenue contribution to the national budget by corporate taxpayers is due to different tax incentives given to them. That foreign direct investors, especially those in the mining industry have been given reduced tax rates, exemptions and zero rates. That there is no evidence that small to medium enterprises (SMEs) are given tax incentives. We can therefore conclude that Malawi tax system is unjust and un-progressive in nature.

Study on The Revenue and Benefits of Foreign Direct Investment in the Extractive Industries in Malawi Mining contributions to GDP at 10% All minerals are vested in the President on behalf of the people of Malawi. Minerals are governed by the Mines and Minerals Act (1981). Study focused on Kayelekera Uranium Mine operated by Paladin (75%) and GoM (15%). The biggest FDI in the country with an estimated investment portfolio of $500 million.

OBJECTIVES OF THE STUDY To interrogate the revenue gains and losses associated with FDIs in the extractive industries in Malawi To analyse the extent to which capital flight in the form of profit repatriation by foreign investors impact on revenue loss To evaluate other non revenue benefits and costs of FDIs in the extractive industries in Malawi. examine national strategies and measures implemented to address the problem of capital flight

FDI INVESTMENT INCENTIVES (1) 15% carried equity in project company to be transferred to the Republic of Malawi (in return of (1) and (2); (2) Corporate tax rate reduced from 30% to an effective 27.5%; (3) 10% resource rent reduced to zero (4) Reduced Royalty rate from 5% to 1.5% (years 1 to 3) and 3% (years 3 plus);

(5) No 17 % import VAT or import duty during the stability period; (6) immediate 100% capital write off for tax purposes; The capitalisation (debt:equity) ratio of 80:20 for the project; and (7) stability period of 10 years-no increase to tax/royalty, regime and commitment to provide the benefit of any tax/royalty decrease during the same period.

FINDINGS Kayelekela was registering loses and that its operations were under optimum efficiency. The deal negotiated between the company and GoM; was a bad one. The laws and fees concerning mining were out dated and need to be revised. Negotiations for mining concessions are were transparent. There was too much political involvement in the affairs of mining;

FINDINGS...CONT’D Cost Benefit Analyses Malawi benefited marginally from this deal Benefits decreased with posting of company loses New business opportunities had arisen in Karonga. Social costs Increase in economic activities caused inflation in Karaonga Increased incidences of transmittable diseases Tension between Kayelekela workers, government on one side a local residents and business operators on the other side.