Madagascar businesses 'withholding tax' over political crisis By RIVONALA RAZAFISON in Antananarivo | Wednesday, July 31   2013 at  15:06

Revenue from mining remains crucial to struggling Madagascar's economy. RIVONALA RAZAFISON | NATION MEDIA GROUP 

Madagascar's businesses have followed through their threat of withholding payment of taxes to the government over what they say is the country's debilitating political crisis.

The firms are said to have secured their dues at a lodging and confinement fund held with several banks instead of reporting to the island's tax offices as is the norm.

The fund, created in June, is said to be holding about 40 billion Malagasy Ariary ($18.2 million) from over half of local taxpayers, Malagasy unions said.

Only three foreign operators have paid their taxes this month, a source in the country's tax department revealed.

They are all minors while those involved in the tax resistance contribute up to 90 per cent of the annual tax income of the state, the source said.

Madagascar businesses in May threatened to cut ties with the government following the lack of progress towards stabilising the country following a military-backed coup in 2009. (Read: Madagascar's businesses 'to withhold tax' over political crisis)

The country's prevailing political impasse has made trading difficult, they said. Polls are tentatively expected in August but the run-up has been riddled with controversy over the eligibility of the main candidates.

The traders say they will only pay their taxes to a validly-elected government.

This is in spite of the country's tax administration terming the move as illegal and has asked the businesses to look for options that do not deprive the exchequer of much-needed revenue. Talks between the two sides have so far failed to reach an agreement.

Banks holding tax funds have also been urged to reveal the account holders.

"Our role is to apply the law. Any reluctant operators risk being exposed to sanctions," the tax administration warned through different paid-for releases in journals.

But the businesses remain defiant and will next week meet to chart new methods of pressuring political players.