ActionAid Malawi has said this in its budget tax revenue policy analysis which was presented to members of the Budget and Finance Committee of Parliament in the Capital Lilongwe.
The organization also says the introduction of a standard Value 16.5 Added Tax on cooking oil will hurt small scale producers and consumers and affect revenue generation.
In his presentation of the proposed 2020/2021 national budget last month, Finance Minister, Felix Mlusu–outlined these two tax measures and several others in the hope of increasing the revenue base to finance the budget.
And ActionAid has, in the first place, agreed that the two tax policies would indeed increase the revenue base–considering the value of Soya bean market alone estimated at 30 million dollars and growing participation of Malawians in betting.
However, the organization says if government wants to increase the revenue base, it needs to impose more taxes on the wealthiest people or corporates and not milk the poor such as gamblers and local cooking oil producers
Speaking in an interview with Nyasa Times after the analysis had been presented, Executive Director for ActionAid Malawi, Assan Golowa, said members of the Budget and Finance Committee needed to know and discuss these concerns surrounding tax policies so that they lobby relevant authorities to take appropriate action.
“Our position is that taxes should be very progressive. Taxes must speak to the needs of the communities. Taxes must deliver on the development activities in line with the aspirations of the people.
“We have a feeling that the country continues to register a fiscal gap. There is less and less revenue being generated while our needs continue to grow. With that, there are disparities in terms of allocation of tax revenue to different sectors of society. The women and youths are the most affected,” said Golowa.
According to the ActionAid analysis, the VAT on cooking oil–which is a consuption tax–will lead to increased pricing of the product and make the consumer suffer the most.
The analysis, quoting the cooking oil producers that have ganged up against the new tax measure include Capital Oil Refining Industries Limited, Sunseed Oil Limited, Agri Value Chain Limited, Mount Meru Petroleum Limited, and MOTI Oils Mills Limited operating under an umbrella body called Edible Cooking Oil Association of Malawi (Ecoam), adds that the tax will affect small scale producers if it is not pushed to the buyers.
“Before this tax, the oil industry registered remarkable benefits to the economy. The growth of Soy Bean shot up in 2017 from 137,000 metric tonnes to 250,000 tonnes.
“This resulted in increased gains by smallholder farmers as demand for the bean increased, market value estimated at 30 million dollars. The industry saved forex due to local production of crude Soy Bean oil,” further reads the analysis in part.
The local press quoted Mekelina Mtalimanja, 36, who survives on selling cooking oil at the populous Nsungwi market in the densely populated Area 25 in Lilongwe, saying her livelihood could be hanging by a thread, should parliament pass a 2020/21 budget which has proposed a standard Value 16.5 Added Tax on cooking oil.
“Okapanga choncho wo Chakwera ndeku otilakwira zedi.Ndithudi otipweteka [If Chakwera government goes ahead to implement such a tax measure, that will spell doom to our business.We will be squeezed out of this business for sure,” she complained in a typical and deep chewa toungue in quotes reported by Business Review.
On betting, the analysis, quoting the Malawi Gaming Association, says the imposed tax is making operators of gambling to contemplate shelving down or exiting the gaming industry which would result to loss of 1000 direct and indirect jobs.
However, when he presented the budget statement, Mlusu had justified government’s decision to introduce these taxes especially on refined cooking oil.
He told Parliament:’”Previously, refined cooking oil was VAT exempt and manufacturers were not able to claim tax refunds on their input VAT. This measure will now allow manufacturers to claim input VAT.
“Local manufacturers of refined cooking oil will continue to benefit under the Industrial Rebate Scheme where raw materials are imported without payment of duty.
“In addition, under the Surcharge Tariff regime, the local manufacturers are protected
from adverse competition. In this regard, arbitrary price increases especially by local manufacturers reflecting the full VAT adjustment on the refined cooking oil, is not expected.
Members of Parliament (MPs) are expected to wind up debate on the 2020/2021 budget statement this week and ActionAid Malawi believes this was an opportune time to engage them on these concerns.
And taking her turn, Chairperson of the Budget and Finance Committee, Gladys Ganda, assured ActionAid that her committee would present these issues to the Minister of Finance, adding that she could have loved if these concerns were availed before the budget was even presented.
However, Ganda said she thinks the tax on cooking oil and betting is necessary for now if government is to really increase the revenue base to finance a number of sectors as advocated by ActionAid.
“The tax on cooking oil cuts across the board. After all, we want government to generate more money. We want government to meet the revenue target to finance the budget.
The fear of closure of shop is a mere scapegoat by these betting companies so that they do not pay tax. They must pay, the money will grow the economy,” she said.
It is feared that the re-introduction of Vat will imply that the price of cooking oil will have to increase now on the local market, thereby triggering huge smuggling of refined cooking oil from Mozambique, Zambia and Zimbabwe into the country through the long stretch of porous border that cannot easily be policed by Malawi.
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