Abstract

Malawi faces sustained fiscal pressures stemming from reduced external assistance, recurring macroeconomic shocks, and rising public debt. Strengthening domestic revenue mobilisation has therefore become a central policy priority. Although the informal economy accounts for a substantial share of employment and economic activity, it remains difficult to tax because many enterprises operate with low and irregular incomes, limited accounting records, cash-based transactions, and weak visibility to tax authorities. This study comparatively examines five instruments used to tax and formalise informal economic activity in Malawi: Advance Income Tax (AIT) on imports, the Block Management System (BMS), Withholding Tax (WHT), Tax Clearance Certificates (TCCs), and Presumptive Tax. Using a qualitative comparative policy-analysis design, the study draws on legislation, Malawi Revenue Authority (MRA) publications, policy reports, and academic literature. The instruments are assessed against four criteria: revenue mobilisation, administrative feasibility, compliance and formalisation outcomes, and long-term sustainability.
The analysis suggests that indirect, transaction-based instruments, particularly WHT and AIT, are comparatively more effective than direct field-based approaches because they operate through observable transactions and third-party intermediaries. TCCs also provide a strong incentive for compliance by linking tax status to access to public procurement, importation, licensing, and other regulated commercial opportunities. By contrast, BMS and Presumptive Tax have modest short-term revenue potential but remain important as mechanisms for taxpayer-discovery and simplified entry points into the tax system. Digitalisation can strengthen all five instruments by improving taxpayer identification, transaction traceability, data integration, and risk-based enforcement. The study concludes that informal-sector taxation should be understood principally as a long-term strategy for expanding tax capacity and supporting gradual formalisation, rather than as an immediate mechanism for extracting substantial revenue from micro-enterprises.