CAMA demands for reduction of cooking oil prices following government’s removal of VAT

Consumers Association of Malawi (CAMA) is demanding the edible cooking oil refiners to reduce prices of their commodity on the market after Government, which was under constant pressure from cooking oil producers to remove value added tax (VAT) was obliged.

In his National Budget presentation in Parliament on February 18, Finance Minister Sosten Gwengwe announced that VAT on cooking oil has been abolished just as that on household tap water.

He said the Ministry abolished the withholding VAT system because a number of taxpayers complained that it is affecting their business and thus the government saw merit in that.

In his statement issued on Tuesday, March 1, CAMA Executive Director John Kapito said “for close to two years, the cooking oil producers informed and advised Government and consumers that prices of cooking oil went up in the country as a result of the introduction of VAT”.

CAMA Executive Director John Kapito

“As Consumers, we are expecting the cooking oil producers to immediately take necessary steps to reciprocate what Government has done by removing the VAT which was the only singled contributing variable that the industry said was the reason for the current high prices of cooking oils in the country.”

He added that consumers will not accept any other reasons for failure to reduce prices and that they want to see the benefits after the removal of VAT on the commodity.

“The cooking oil refining companies went all over lobbying, especially the media, ordinary Malawians — including Government officials — that the prices of cooking oil have gone up as a result of the introduction of VAT.

“And indeed, this was believed by the many consumers in the country. While as CAMA we provided information to the main reasons as to why the prices went up in the country with statistics, the cooking oil refining companies denied any of those figures that we presented — insisting that the prices went up with nothing else but the introduction of VAT.

“They accused Government for introducing the VAT which made many Malawians not to access the product especially in the rural areas. As a result, consumers attacked Government for introducing VAT as propagated by cooking oil refining companies.

“Government was pushed to the wall, they were ransomed at many times. We are happy that Government has decided to remove the VAT and with that we are expecting to see huge reductions on cooking oil prices as it was the only variable that the refining companies singled out to be the main reason why prices had gone up.

“There will be no reason for the refining companies to make delays in reducing the prices — they lobbied everybody in the country and consumers listened, agreed with them and believed their story.

“We do not expect the cooking oil refining companies to start coming up with any new excuses as to why the prices cannot come down.”

Kapito concluded by asking Government as well “to ensure that it is monitoring the behavior and character of cooking oil refining companies as consumers are now looking forward to reduced prices with immediate effect”.

Last year, following complaints from consumers over the rapid increase of prices for edible cooking oil, CAMA engaged with the refining companies to find out what has led to this trend, who indicated that the introduction of 16.5% VAT which government re-introduced in 2020 in the Parliamentary National Budget was the contributing factor.

Initially, CAMA had joined the condemnation of the VAT tax measure believing it was indeed through the re-introduction of VAT until when CAMA did its own analysis — which it agreed with the government for reintroducing the VAT system.

CAMA next undertook to engage with Malawi Revenue Authority (MRA), who clarified that the VAT should not be attributed to the reintroduction of VAT — but rather asserted what former Finance Minister Felix Mlusu announced in Parliament that cooking oil manufacturers needed not raise prices of their commodities since tax measures would enable them to claim the input VAT when a consumer purchased goods or services liable to VAT.

MRA said the prices of cooking oil shouldn’t have gone up as high as it did because of VAT but could have been as low as 10%. MRA further indicated that manufacturers — including those in the cooking oil business — enjoy tax for industrial materials that exempt them from paying import duty such as the crude oil.

CAMA further undertook its own survey and discovered some worrying trends in cooking oil prices on three brands of cooking oil as of February 2021 since the VAT was effected that showed:

* A 38% increase for a 5 litre bottle that was at K5,400 before VAT but it was adjusted to K7,438;

* A 2ltr bottle went up from K2,100 to K2,999 (representing an increase of 43%)

* A 1ltr bottle from K950 to K1,550 (63%) and 500mls from K520 to K790 (52%);

* For Kukoma, produced by Capital Oil Refinery Industries (CORI), 5ltr bottle increased from K5,700 to K7,735 (36%);

* A 2ltr bottle from K2,400 to K3,135 (11%);

* A 1ltr from K1,500 to K1,627 (8%) and 500mls from K620 to K858 (38%);

* Sungold 5ltr bottle increased from K6,200 to K6,999 (13%);

A 2ltr bottle from K2,700 to K2,999 (31%)

* A 1ltr from K1,450 to K1,500 (3%).

Having concluded the investigation, CAMA in collaboration with MRA held a press conference that was attended by the cooking manufacturers’ representatives where they were told that they should not continue to attribute the price increase to the 16.5% VAT.

CAMA made it known to the manufacturers and the media that in 2015, CAMA successfully championed for government to remove VAT from cooking oil with the intention that prices could go down for the rural masses to afford the commodity, which is enhanced with Vitamin A.

But within six month after VAT was removed, prices of the commodity still increased — which showed that other factors played a hand since most of the manufacturers actually just import crude oil and refine it.

It was put to them in collaboration with MRA that the price increase should not be justified that it’s coming from the VAT because if it was then it should have been at 1.6%. But there was increase of 52% for Mulanje and 38% for Kukoma just for a 500 liter bottle.

But the cooking oil manufacturers then changed tune and asserted that cooking oil smuggling along the neighbouring countries borders also contributed, saying the inclusion of VAT made smugglers profit in by bring cheap commodities.

But MRA disputed this claim on smuggling, saying their fight against smuggling of any commodity is their priority and that they have dedicated patrol units that are plying along the borders of Mozambique operating from Muloza in Mulanje.

Kapoloma said since they intensified the patrols, they have intercepted lots of smugglers and confiscated many tonnes of cooking oil.

The manufacturers also disclosed that globally the price of crude oil had increased and thus they too had to follow suit — to which both CAMA and MRA attributed as having played a huge part in the products prices and not VAT as claimed.

Soon after the Finance Minister declared VAT on cooking oil, and when the manufacturers went on to increase the prices, they lobbied to the Minister of Finance, through a letter dated September 14, 2020, to review or withdraw the VAT as it might trigger serious negative multiplier effects in the economy.

The manufacturers argued with the Minister that if the increase in prices of their products was to continue, it will allow room for massive smuggling of the product from neighbouring Mozambique, Zambia and Zimbabwe where there is no VAT applied on it.

But the Finance Minister maintained that the introduction of the standard rate of 16.5% VAT on refined cooking oil was to ensure efficiency in the VAT system — taking cognizance that previously the commodity was VAT exempt and manufacturers were not able to claim tax refunds on their input VAT.

This measure meant it would allow manufacturers to claim input VAT and MRA added credence to this stand, saying when manufacturers buy their raw materials to produce the cooking oil, they pay VAT — which is their input VAT and when they sell their products they charge VAT — that is their output VAT.

The input VAT and the output VAT can only be netted off if there is VAT on the product. In that regard since there is claiming of the input VAT it does not become a cost to the manufacturer. Prices should, therefore, not have been affected in any way. In fact, they should have gone down.

CAMA, thus warned the manufacturers not to attribute VAT on the reintroduction of VAT but rather justify on other elements affecting their industry and at the same time, CAMA appealed to Malawi’s Financial Intelligence Institutions, the Competition and Fair Trading Commission and the Ministry of Trade to take action on why cooking oil manufacturers prefer importing their raw materials and investigate whether there are elements of price transferring plus collusion.

CAMA asked the Competition and Fair Trading Commission to investigate why the cooking oil manufacturers are operating as an Association whose interest is to fix market prices and control the distribution and sales of their products on the market.

The Ministry of Trade was to investigate why the cooking oil manufacturers are importing crude oil in a country with more resources and capacity to produce such raw materials.

CAMA took cognizance that prices of crude oil, locally used in the refining of cooking oil, had and keeps increasing on the global market hence the local shelf prices of cooking oil skyrocketing substantially. Therefore, the massive increases of cooking oil in Malawi is as a result of the high import prices of crude oil.

CAMA contended that the choice to import crude oil and using the hard-earned foreign exchange is the blatant disregard of the country’s local farmers, who have the capacity to produce most of the raw materials such as Soya beans, Sunflower and Groundnuts used in the production of cooking oil.

The cooking oil producers — just as all industrial manufacturers enjoy a number of tax reliefs/exemptions on the importation of their raw materials and machinery, whose benefits had not been passed on to consumers.

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