Malawi is an agro-based economy and agriculture accounts for more than one-third of Gross Domestic Product (GDP) and 90 per cent of exports.
The Taxation Act recognizes farming as a special trade and it provides special treatment for the taxation of farming or agriculture.
A farmer derives income from pastoral, agricultural, or other farming operations. Farmers receive own taxation treatment despite what has been stated elsewhere in the Taxation Act about income tax.
The idea is to encourage farming whether pastoral, agricultural, and other farming operations through once-off allowance of certain capital expenditure. Farming or agriculture provides the highest involvement of people in Malawi directly and indirectly.
Although otherwise capital expenses in nature, the following are allowable deductions in farming: stumping, levelling and clearing of land; works for prevention of soil erosion; boreholes; wells; aerial and geographical surveys; water control works for growth of rice, sugar or any other crop as approved by the Minister; and water conservation works. Water control includes canal, channel, dyke, furrow, any flood control structure temporary or permanent.
Notwithstanding any provisions in the Taxation Act, no expenditure incurred by a farmer shall be allowed as a deduction from assessable income or form subject of capital allowances if it is recoverable through a subsidy.
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