Taxation
What the exam tests
Taxation in CA(M) covers Malawi income tax on companies and individuals, VAT, withholding taxes and the administration of the Malawi Revenue Authority (MRA). You are expected to compute taxable income from accounting profit, handle capital allowances, and apply the 30% corporate rate and 16.5% VAT rate under the Taxation Act and annual Finance Acts.
Core rules
- Taxable income is not accounting profit. Start with accounting profit, add back disallowable items (depreciation, fines and penalties, donations to non-approved bodies, non-deductible entertainment), deduct capital allowances and income already taxed, then apply the rate.
- Capital allowances replace depreciation. Qualifying expenditure is written off under the statutory allowance regime at prescribed rates; accounting depreciation is always added back.
- VAT is a collection mechanism, not a cost. Registered traders charge output tax at 16.5% on taxable supplies, deduct input tax on purchases used to make taxable supplies, and remit the net. Exempt supplies break the chain; zero-rated supplies (such as exports) carry 0% but still allow input recovery.
- Withholding tax is deducted at source on dividends, interest, royalties and certain service payments; it is a credit against the recipient's final liability, not a separate tax.
- Provisional tax is paid in instalments during the charge year, with the balance settled on assessment.
Worked example: corporate taxable income
Accounting profit K480m. Adjustments: add depreciation K90m, add fines K6m, add donation to a non-approved body K4m; deduct capital allowances K110m and exempt dividend income K20m.
Taxable income = 480 + 90 + 6 + 4 − 110 − 20 = K450m. Tax at 30% = K135m. Note that only K110m of capital allowances is deducted, not the K90m depreciation charge; deducting both would double-count the relief.
Traps that cost marks
- Deducting accounting depreciation as well as capital allowances.
- Treating VAT charged to customers as income, or input VAT as an expense.
- Ignoring withholding tax already suffered when computing the final liability.
- Missing penalties and interest on underpaid provisional tax.