Impact of Auditing on VAT Compliance: A case study of small VAT operators in Blantyre City of Malawi

International Journal of Research and Innovation in Social Science (IJRISS) | Volume IV, Issue XI, November 2020 | ISSN 2454–6186

Impact of Auditing on VAT Compliance: A case study of small VAT operators in Blantyre City of Malawi 

Lovemore George Mwanandi
Private Industry Practioner

Abstract
The perception of many tax professionals and other scholars is that VAT auditing has a positive effect on compliance of VAT operators and the study was carried out to assess that belief. Quantitative data was collected from a sample of 353 respondents using probability sampling technique and 101 respondents responded positively representing a 29% response rate. The study established that there was a weak insignificant negative relationship between VAT compliance and audit and that only 1 % of VAT operator’s compliance is explained by VAT audits. In the circumstance, the study informed that VAT audits do not make a substantial impact on VAT compliance in Malawi. This means that VAT compliance cannot in any way be affected by audit rates in Malawi and that audit productivity and effectiveness does not add much value to compliance and revenue.

Keywords:- Value Added Tax, VAT compliance, VAT returns filing, Small VAT operators, Taxable person and VAT auditing.

1.1 Background

Malawi has faced revenue in-sufficiency and noncompliance problems over the years and fail to provide adequately for social services, development projects and economic growth. The problem is so huge that itsyearly budgets are always in deficit as revenues do not match proposed expenditures. There has been a large increase in fiscal deficit that has been attributed to the rapid expansion in expenditure and low revenue collection and it is a recurring feature of public sector financing (Malawi Government, Budget Paper, 2020). These problems have further been compounded by the freezing of donor aid by cooperating partners because of governance issues such as corruption commonly known as cash gate, Covid 19 and others. These problems have exposed very serious governance weaknesses and public financial mismanagement to the extent that government was plundered of more than MK 1 trillion that was stolen by June 2020. These problems have un-necessarily made Malawi very poor and almost bankrupt. The extent of the problem is that Malawi is failing to repay billionsit owes several banks and suppliers of goods and services respectively(Malawi Government, Budget Paper, 2020).Almost all development partners suspended their support arguing that unless public finance management is tightened, they are not going to provide any budgetary support, and this left Malawi with no choice but to rely on domestic revenues for the provision of social services and development projects. Therefore, Malawi government through Malawi Revenue Authority aims to strengthen the administration of taxes in order to improve some of the activities such as VAT operators’ compliance and bring efficiencies that maximize tax collections (Malawi Revenue Authority, 2020).

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