Export taxes as a trade policy tool in Malawi: the case of timber products

• Main Author: Mkumba, Maxwell Young
• Other Authors: Hartzenberg, Trudi
• Format: Dissertation
• Language: English
• Published: University of Cape Town 2016
• Subjects: Management Practice; Trade Law and Policy
• Online Access: http://hdl.handle.net/11427/16597

Includes bibliographical references === The study examines the export tax as a trade policy tool in Malawi, with a specific focus on the timber industry. This study was motivated by the sudden imposition of an export tax on timber trade by the Malawi Government in 2011, as a reactive policy to an upsurge in timber exports from Malawi. The objective of the study was, therefore, to investigate why the Malawi Government decided to impose the export tax, and whether this trade policy tool has been effective in meeting the objectives. In this regard, the study was done in a broad manner to cover both the theoretical aspects of the export tax, as a trade policy tool, and the practical realities about the Malawi Government's management of the forestry sector and the timber trading in an environment where the Government decided to join the global rules-based trading system. The study used a descriptive explanatory design, employing qualitative methods that involved the use of questionnaires and analysis of the existing literature. The results revealed that an export tax is a duty that is applied on products before they are exported in order to achieve certain objectives, which include government revenue collection, domestic price stabilization, achieving food security, or promoting value addition, hence, industrial development. The review of the literature has demonstrated that care should be exercised when adopting this policy tool because export taxes can be trade-restricting and welfare diminishing on a country, or can constitute a "beggar-thy-neighbour" policy when not properly designed. It is in consideration of such consequences that it has now become fashionable for modern free trade agreements (FTAs) to include provisions on export taxes. For instance, the SADC Protocol on Trade includes Article 5 which prohibits Member States from applying any export duties on goods for export to other Member States. However, from the study, it has been established that if the export taxes are properly designed and implemented, they can boost Government revenue and catalyse industrial productivity. In this respect, evidence has shown that the Government imposed the export tax on timber to curb influx of foreign traders who have been buying the timber because it was cheaper that the timber found in the neighbouring countries. This was a reactionary use of export tax as a trade policy tool, rather than taking a proactive approach to ensure that the Government achieves the policy objectives. Thus, the available literature has shown that the Government could combine the various objectives for introducing the export tax on timber. In this regard, the efficacy of the export taxes depends on the creation of proper linkages with other policy initiatives, such as existence of local knowledge, technological development and processing capacity for increased local production to meet high standards of the international market. Thus, while the Malawi Government can maintain the export tax on timber, it should be done with a very clear objectives and timeframe for using it as a trade policy tool. The Government can combine a number of policy objectives, such as, revenue generation and use the proceeds to undertake re-afforestation programme and protect the environment while, at the same time, encouraging value addition or encouraging global value chains. Such initiatives have the capacity to generate economic gains because as the country builds the productive capacities, there is employment creation and use of other domestically produced inputs or raw materials. In this respect, it is important that the pricing of timber or forestry products should also reflect the appropriate or true economic rent, which should be levied from the use of the natural resource. The study has, therefore, revealed that the Malawi Government should review the method of collecting the export taxes to ensure maximum compliance, curb corruption, and avoid loss of foreign exchange earnings. The Government should devise other ways of collecting the export taxes than at the points of exit or the designated borders. One recommendation is for the Government to place the Malawi Revenue Authority officials at the sites where the timber is harvested, and make such sites as the collection points. More importantly, the study recommends that Government should conduct civic education campaigns targeted towards timber producers and exporters, highlighting the benefits of the export taxes to avoid illegal trade and corruption. The study has further revealed that it is possible for the Government to increase the stumpage fee to the levels that would be comparable to the stumpage fees in other countries such as Kenya, South Africa, and Tanzania.