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“I run my business in the Madagascan way: I massively purchase goods and I sell them at better prices” claims 31 years old Maminirina R.. It has two employees, does not pay taxes at the moment, but longs for formalizing his business. “I have to drop a lot of opportunities when an increasing number of companies does no longer want to deal with informal business in spite of the more reasonable costs. There are certainly constraints to make do with, but I still want to formalize my business.” declared 33 years old Fetra R, 33, who once went the other way around. He used to run an agency specializing in the web industry. “I asked my French customers if they were fine with me turning into a freelancer again in order to keep prices low. They agreed. I only had to make it clear that the VAT was off and that the invoice is payable upon receipt.” The young web entrepreneur does not regret his business for so much. “Business has been running well since I dropped charges. I have no longer six employees, but just as so many freelancers paid on project basis” he summarized. However, the recovery of normality at mainstream political level seems favorable to the formalization of activities.
Forecasts going upwards
In the second half of the year 2014, 2,954 formal businesses have been created, in other words, an increase of 26.8% compared to the score of the first quarter. The Finance Ministry even records a slightly improved levy average of 11.6%, namely a plus 0.9%, leading to an additional 124.5 billion MGA of domestic revenue to the MGA 1493.7 billions expected by the first Finance Act of the year 2014. The government keeps aiming at “the establishment of a fair, secure and efficient tax collection system while boosting the amount of expected tax revenues.” Some reforms have come into force in order to replenish the state treasury. In order to broaden the tax base, the local Internal Revenue Service targets unregistered artists who will have to pay an income tax (IR) as well from now on. The minimum charge of 2000 MGA is established as Income and Related Revenues Tax (IRSA) for every employee regardless of the amount of the income.
Back in 2013, IR and IRSA accounted for $ 270 billion and $ 250 billion of tax revenue. The effects of the new reform are likely to be less far reaching than expected. For revenues amounting to 250,000 Ar a month, the levied IRSA amounts to no more than Ar 2000 For wages lower than 250,000 MGA a month, the following equation comes out: IRSA = 20%.(base-250,000 ). On the other hand, the State is in for sucking a wee bit more in terms of excise taxes, for importation of vehicles will suffer a 10% tax from now on. “Madagascar must not be allowed to be turned into a garbage dump for old cars,” said the Director of the Tax Collection Service. Taxes on ethyl alcohol and water spirits will be increased. Taxes on cigarettes and locally produced rum will go down to a certain extent. “This scheme will develop those fields of operation and help creating jobs,” argued Armand Tazafy. The State would not too openly dare encouraging people to drink alcohol and smoke tobacco, would it?
Returns from taxes have always been too low and regularly pointed out by Madagascar's foreign financial backers as one of the obstacles to the development of the island. The local mandatory levy averages the much too low 11% of GDP, and the tax bases reveal that about a mere 12% of the population contributes to tax collection. The repeatedly proposed, and eventually imposed solution, is the extension of the taxpayer base to 15%, but proves however to be physically impossible. In a society ruled by a continuously thriving informal sector based economy, such a project appears more than problematic as a matter of fact.