Malawi Introduces New Taxes

Malawi’s government has introduced higher taxes, including a VAT increase, revised PAYE rates, and new business levies, prompting concerns that the measures could raise living costs, worsen inflation, and discourage investment.

Malawi’s government has unveiled a series of new tax measures in the 2025/26 Mid-Year Budget Review, aimed at reducing the country’s growing budget deficit. The changes include an increase in the value-added tax (VAT) from 16.5% to 17.5%, revisions to the Pay As You Earn (PAYE) system with the top income bracket now taxed at 40%, and the introduction of new business levies, including the Minimum Alternate Tax (MAT), which obliges companies to pay 0.5% of total sales even if they report no profit.

While the government has framed the reforms as necessary for fiscal stability, economists, business leaders, and consumer advocacy groups have raised concerns about their potential economic impact. Experts warn that higher VAT and business levies could push up the cost of essential goods, intensify inflationary pressures, reduce investment, and strain households already struggling with high living costs.

Consumer advocacy groups have particularly highlighted the risk to ordinary Malawians, who are likely to bear the brunt of rising prices on everyday items such as food, transport, and household goods. Business leaders have also cautioned that the Minimum Alternate Tax and reductions in tax thresholds for high earners may discourage investment at a time when economic growth is already fragile.

Economists argue that tax hikes alone are unlikely to solve Malawi’s fiscal challenges and emphasise the need for structural reforms, improved tax compliance, and tighter fiscal management. “Raising taxes without reform is like tightening a belt on an already hungry nation,” said one observer, summarising the risks of implementing broad-based taxation without accompanying measures to support households and businesses.

The government has defended the measures as a necessary step to shore up public finances, but the new tax regime is expected to spark debates on how to balance revenue generation with economic growth and social welfare.