The Effects of Exchange Rate Dynamics on Tax Revenues Collection: Evidence from Malawi Between 1990 and 2022

ISSN: 2709-8575
Source: African Multidisciplinary Tax Journal, 2024 Issue 1

Abstract

Exchange rate dynamics play a critical role in the determination of tax revenue collection yet remain underexplored in the literature for both Malawi and other sub-Saharan countries. This study addresses this gap by examining the impact of exchange rate dynamics, including devaluation policies and changes in exchange rate regimes on tax revenue collection in Malawi. Using time series secondary data from 1990 to 2022 and employing vector autoregressive (VAR) estimation techniques, the study finds that changes in factors such as exchange rates and the exchange rate regime Granger cause variations in Malawi’s tax revenues. The findings suggest that aligning tax reforms with the recognition of foreign exchange gains or losses could enhance domestic revenue mobilisation efforts, particularly through effectively taxing external currency-denominated assets and broadening the tax base.