• NICO Holdings reported a record $185 million profit in 2025, but its auditor Deloitte said the real figure should be $25 million lower than that

• A new tax on stock market gains was approved on Dec. 20, 2025; the new government said 69 days later it would replace it with a much smaller one

• Other Malawian banks and life insurers face the same accounting question as they publish their own 2025 results, with the bourse already falling

NICO Holdings Plc, Malawi's largest financial group, said profit jumped 141% in 2025 to MK323.5 billion ($185 million), the best year in its history. But its auditor, Deloitte, signed a qualified opinion on the accounts, saying the real figure should have been about $25 million lower under standard accounting rules.

The disagreement is about a single tax. On Dec. 20, 2025, the outgoing government of President Lazarus Chakwera approved a new law making profits on Malawi Stock Exchange shares taxable at up to 30%. The change took effect immediately, just 11 days before NICO closed its books for the year. Companies sitting on big paper gains from the stock market — and there were many, after the bourse rallied 236% during 2025 — suddenly faced a large tax bill on those gains.

Under international accounting rules, NICO should have set aside about $107 million to cover that future tax. NICO did not. The directors said the new government, which took office after the September 2025 elections, announced on Feb. 27, 2026 that it would scrap the tax and replace it with a much smaller 2% charge on share sales. Recognizing a tax liability that "is not expected to crystallise in practice" would mislead investors, the directors wrote in the report.

Deloitte disagreed. The repeal had not yet been passed into law when NICO's directors signed the accounts on March 20, the auditor said in a report dated April 2. Standard practice is to recognize the tax based on what the law actually says on the reporting date, not what governments say they plan to do later.

Tax whiplash

The two tax regimes are very different. A 30% capital gains tax falls on profits made when shares are sold. The replacement 2% tax falls on the total sale price, regardless of profit. For investors who bought shares cheaply and now sit on huge gains — including most large Malawian institutions — the 2% tax is roughly 10 times cheaper. For frequent small traders, it is more expensive than what existed before either change.

A simple example illustrates the gap. An investor who bought a NICO share early in 2024 near 500 kwacha and sells today around 1,650 kwacha would pay the equivalent of less than four cents under the 2% tax, against about 40 cents under the December 30% rule. Spread across the largest Malawian institutional holders, the difference runs into the equivalent of hundreds of millions of dollars in tax that will likely never be paid.

Whether the 2% tax was deliberately designed to favor large investors or was simply quick policy under fiscal pressure has not been explained by the office of Finance Minister Sosten Gwengwe. The previous administration, under International Monetary Fund pressure and a fiscal deficit running at more than 10% of gross domestic product, had been looking for new revenue sources. The new administration appears to have prioritized calming the stock market over collecting the new tax.

The dispute matters for more than just NICO's profit number. The auditor said that if NICO had recognized the tax, the regulatory capital cushion at NICO Life Insurance, the group's life insurance subsidiary, would have fallen to 115% — only 15 points above the 100% legal minimum set by the Reserve Bank of Malawi. That is much tighter than the 157% the company reported, and 71 points lower than NICO Life's 228% cushion the year before.

The reported profit also includes large items that may not last. NICO booked about $51 million in unrealized gains on its stock holdings, more than 10 times the previous year's figure, according to the notes to the accounts. NBS Bank Plc, the group's banking arm, recognized about $17 million in expected losses on Malawi government securities — the first time a major Malawian bank has publicly written down sovereign exposure of that size. NICO Life also relaxed several actuarial assumptions, including its assumption about deaths from AIDS, which it removed entirely. Each of these adjustments boosted reported profit.

The accounts also showed about $14 million of dividends owed to NICO's foreign shareholders — South African insurer Sanlam, US-based Africap, and Botswana Insurance Holdings — sitting unpaid because there are not enough US dollars in Malawi to convert the kwacha into hard currency. That figure has more than tripled in a single year, even as the central bank held its main interest rate at 26% throughout 2025 and the National Statistical Office’s figures show inflation averaging 28.4%.

The cash position of the business tells its own story. While reported profit was $185 million, the group actually used about $27 million more cash than it generated from running its businesses during the year, according to the cash flow statement. The gap is explained almost entirely by non-cash items: stock revaluations, accounting adjustments, and assumption changes. The board still doubled the dividend to MK40.05 per share, payable on April 20.

Other Malawian banks and insurers — including National Bank of Malawi, Standard Bank Malawi, FDH Bank, FMB Capital Holdings and Old Mutual — face the same accounting question on their own stock holdings. Their full-year results are due in the coming weeks. Some are expected to follow NICO and not recognize the tax; others may recognize it and report lower profits as a result. Investors will see two different versions of the same year, depending on how each board decides.

The Malawi Stock Exchange has fallen 11.8% so far in 2026, and the foreign share index is down 41.3%, eating away at the paper gains booked across the sector at year-end. Whether the 2% replacement tax becomes law, whether the central bank accepts NICO Life's reported solvency or sides with Deloitte, and how far the stock market falls in coming months will shape how the rest of the corporate reporting season unfolds in Malawi.

For ordinary Malawian shareholders, who own NICO through pension funds and direct holdings, the simpler question is what the share price does once these accounts meet a falling market.

Idriss Linge