Can tax help Malawi out of a health funding crisis deepened by Trump’s aid cuts?

Malawi has postponed the introduction of a new electronic tax reporting system after protests by small business owners, as the government faces mounting pressure to raise funds following major reductions in foreign aid and an ailing economy.

Thousands of traders shut their shops and marched last week in Blantyre, Lilongwe, Zomba and Mzuzu in opposition to the electronic invoicing system (EIS), which would require businesses to report sales in real time to the tax authority. Authorities have since delayed the rollout until April.

Officials say the system will reduce tax evasion and widen the tax base, but traders warn it will increase prices and threaten already fragile businesses struggling with inflation and foreign-currency shortages.

External financing, such as aid, previously accounted for about 55 per cent of the country’s health budget and, before Donald Trump slashed US aid spending, Malawi received hundreds of thousands of dollars annually across health, agriculture and education. The loss of funding has already led to reductions in HIV services and raised concerns about the continuity of antiretroviral drug supply.

Tax collection has long been a challenge in Malawi, where a large informal economy and heavy reliance on donors historically reduced both the need and capacity to enforce compliance. At the same time, a ruling in the country’s Supreme Court of Appeal ordering the government to pay a significant sum over the handling of the suspension of the Finance Bank of Malawi has drawn criticism from the governance watchdog CDEDI, which says it could push the country deeper into crisis and force further tax increases or borrowing.

The group says the government collects only about half of its roughly 8 trillion kwacha (£325 million) budget in tax revenue and relies heavily on debt. It warned the payout could reduce funds for hospitals, schools and salaries.

To raise money, authorities have introduced higher income and value-added taxes, levies on mobile money and bank transfers, taxes on gambling winnings and renewed duties on imported cement. Other proposals include taxes on pensions and inheritance.

Finance Minister Joseph Mwanamvekha has urged citizens to “remain resilient” as the country works to stabilise its finances and improve revenue collection.

The measures come as fuel prices have risen by more than 40 per cent, inflation remains high and businesses face severe foreign-currency shortages, forcing importers to buy dollars on the black market at far above the official rate.

Malawi already spends about 90 per cent of domestic revenue on wages and legal obligations, leaving limited funds for health and social services previously funded by donors. Under a health agreement with the United States, it must also spend $143m (£105m) of its own funds on health over five years.

Across Africa, countries are trying to replace declining aid with domestic taxes. In Malawi, the delayed tax system reflects a wider shift - from donor-funded services towards funding them at home, during a period of economic hardship.

This article has been produced as part of The Independent’s Rethinking Global Aid project