Lessons from Voluntary Compliance Window (Vcw): Malawi's Tax Amnesty Programme

Abstract

The Malawi Revenue Authority (MRA) implemented the Voluntary Compliance Window (VCW) in 2013/2014 fiscal year as a means of bringing non-compliant taxpayers into the tax net. The programme was a huge success in terms of revenue and the cost of collection at 0.8% was by far below the 3% benchmark for the gross tax revenues of the Authority. However, the long-term compliance impact of the programme was not evaluated. Hence, the paper intends to bridge knowledge gap. Firstly, observing trends in debts and penalty payments covering and extending beyond the amnesty period, the paper finds that debts substantially declined after amnesty period while penalties rose sharply after VCW. Secondly, by constructing a counterfactual for large taxpayers, the paper finds that tax payments of participants significantly improved after the programme. Thirdly, the paper examines tax payment patterns by VCW participants one year after the programme. About 75 percent of amending filers subsequently paid their taxes one year after VCW with a higher mean income than the non-subsequent taxpayers. Lastly, the paper finds that smuggling remains high after observing variations in customs offences during VCW and a year later, in FY2015/16. The question remains “Should Malawi reconsider another Voluntary Compliance Window after 3 years?” The paper agrees with most previous studies by strongly discouraging another amnesty while encouraging post-amnesty enforcement efforts.

Keywords: Malawi, voluntary compliance, tax amnesty

JEL Classification: H260