Illovo Sugar Malawi Challenges Government’s New 10% Corporate Tax Policy

The Malawian government’s move to extend a 10% corporate income tax to businesses with profits over K10 billion has stirred significant concern among local businesses. Initially targeted at the banking sector to aid post-cyclone recovery, this broader application has companies like Illovo Sugar Malawi worried about investment impacts.

Illovo Sugar’s Stance

Illovo Sugar Malawi’s Chairman, Jimmy Lipunga, criticized the decision, calling the K10 billion profit benchmark arbitrary and arguing that such measures could hinder rather than help business growth and investment. He was quoted saying, “It’s not very good news for us and I don’t think it’s good news for companies in general. The reference to 10 billion Kwacha is arbitrary because one has to look at the level of investment that you have actually put. The asset base of Illovo is massive because shareholders have put in a lot of resources, so to trying to introduce an additional tax above 10 billion Kwacha, it is basically discouraging investment.

“We are hoping that this tax measure is an interim one and perhaps will be revisited in the near future. It doesn’t help, in fact, the cause for economic growth. In order to stimulate growth of new enterprises, you actually should be going the other way. You should be reducing taxation, because that reduces the cost of capital.”

“In order to stimulate growth of new enterprises, you actually should be going the other way. You should be reducing taxation, because then that reduces the cost of capital,” Lipunga then added.

A Perspective on Fairness

On the other side of the coin, Peter Ngoma of the Oilseeds Producers and Processors Association welcomed the tax, suggesting it brings fairness by evenly distributing economic responsibility across all profitable sectors and not just the banking sector.

What do we think about this new tax?

As of now, with everything we have heard from both sides, we agree with the government’s new corporate tax laws/policies. Why you ask? First of all, yes, the policy does raise new questions about its long-term effects on investment, job creation, and overall economic health. While aimed at equitable tax distribution, it’s crucial to consider whether it will indeed foster an enabling environment for businesses and so far we don’t think it will discourage any future investors.

In the presentation of the 2024-25 national budget, Finance Minister Simplex Chithyola Banda justified a new policy by explaining that the government recognizes other sectors besides banking are also making similar profits.

This tax policy reform is a pivotal moment for Malawi, underscoring the delicate balance between generating revenue and encouraging business development. We just hope the money will be used in the right way and accountable by audit firms and us the public, when the time comes.

• Read about why Illovo sugar is expensive in Malawi

Let us know your opinions and what you think in the comments.