Economist urges Malawi govt to lower tax rates as smuggling soars

As rampant smuggling of different products threatens to cripple the local manufacturing industry, economics professor at the Polytechinic  —a constituent college of the Universityh of Malawi— Betchani Tchereni, has urged government to seriously consider strong measures that can help to curb the malpractice.

Betchani Tchereni: It is when the cost of smuggling is lower than the cost of bringing goods the right way that people resort to smuggling

Of late, there has been a sharp rise in smuggling of items like wheat flour, cooking oil, fizzy drinks and wrappers, passing through Karonga, Mulanje, Ntcheu, Dedza, Thyolo and Mchinji districts.

A simple survey indicates that flour and cooking oil are the commodities being smuggled the most due to the introduction of Value Added Tax (VAT) on the two commodities.

However, Tchereni says government must lower tax rates.

“Government needs to consider broadening the tax base while lowering tax rates. In so doing, people may not be attracted to smuggling. It is when the cost of smuggling is lower than the cost of bringing goods the right way that people resort to smuggling,” observed Tchereni.

The economist has asked government to tread cautiously on the matter.

“Smuggling happens mainly because people are trying to avoid what may be deemed as punitive tax rates. This is mostly for a predominantly importing country such as Malawi where government raises a big chunk of its revenue from import taxes because that’s where a huge economic activity is taking place.

“For traders to be competitive, they then try to reduce costs by smuggling so that they can also avoid income tax and VAT when they reach their respective shops.

“As they do so however, they are depriving government revenue which would have been used to develop this country. In short, therefore, smuggling actually delays development and causes government to be under pressure to finance deficits and opens up to substandard commodities to be sold in the country,” added Tchereni.

But Operations-In-Charge for Agri Value Chain Limited, Rajneesh Dabral, insists the best way to overcome smuggling is to remove VAT on cooking oil and wheat flour.

“We were in this situation before, between 2015 and 2017. The situation was bad as cooking oil manufacturing companies started firing employees as we could not compete with smuggled cooking oil. But all that changed when VAT on cooking oil was removed. Things like tightening security and enhancing border patrols do not work,” lamented Dabral.

Responding to the matter, Public Relations Officer for the Malawi Revenue Authority (MRA), Steve Kapoloma, told Nyasa Times that the major challenge was that the smugglers have informants who sometimes call MRA to disturb their patrolling system.

Kapoloma said the informants may for example tell MRA to rush to a particular route when they want their own truck to pass through another route freely.

He, however, said among many other modalities being employed to deal with the situation, MRA is procuring drones from South Africa.

“We are in the process of procuring drones with specifications of going 2 Kilometres above the sea level and working within a radius of 10 Kilometres. They will have infrared cameras that can take pictures even at night.

“We hope this will be the most prudent way to beat many of the tricks by the smugglers. Also note that at the moment, the Ministry of Trade, the Malawi Police Service and the Immigration Department are coming together to explore even more ways of dealing with the situation because basically the role of MRA is collect revenue,” explained Kapoloma.

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Mdala
Mdala
1 month ago

Where we are now? We thought we have a Free Trade Zone in the whole of Africa since this begining of 2021????

Ndafera Nkhande
Ndafera Nkhande
1 month ago

Izi sizidayambe lero .Ndukumbuka mmbuyomu anthu a ku Liliongwe amazembetsa fodya wa chikopa atamanga zitiwo kukagulitsa ku Mozambique kumene fodyayu samalimidwa.Asiyeni anthu azichita malonda umo afunira .Ma restrictions bweee popanda mchitukuko chomwe isa kagwereni uko ndi madrone anuwo.

Koka
Koka
1 month ago

Simple, as many have pointed out, reducing the tax rates or just removing VAT on cooking oil and floor is major part of the solution to smuggling. Tightening security will never work. The smugglers will always be ahead; they will find other means of smuggling those commodities. Some challenges require non-lethal approaches to curb them. Smuggling is one of the oldest and complex professions. Therefore, only focusing on enforcement will not solve matters. Corruption, bribery are other aspects which are directly linked to smuggling. Bringing in drones will only tackle the smallest part of the problem. MRA is one of… Read more »

Shadreck
Shadreck
1 month ago
Reply to  Koka

We should shoot these peoples who are prejudicing our future

Yezzimz
Yezzimz
1 month ago
Reply to  Koka

It’s really not so much to do with corruption.. Even countries like USA and UK, and many European countries have issues with ‘smuggling’, especially for highly taxed and high duty items like cigarettes. For example, I can put one packet Dunhill for £20 in London or I can buy an ‘illegally smuggled’ one from my friend who gets them from Malawi for only £5 or £10. Cigarettes is not a good example because it is a luxury product – but the same principal applies for so many basic necessities which are over taxed and high duty in not just Malawi… Read more »

Andy
Andy
1 month ago
Reply to  Koka

MRA does not know which local industry to protect locally and which one not…. They want to promote irrigation but now introduced 25% Import duty on fittings…. It is encouraging the smuggling….

braveheart
1 month ago

Really? VAT on necessities? What a shame! Milking a thin cow just to fill the pocket.If the cow dies? Typical M’busas thinking,Kuzolowela kudya za mmbale za anamalira

braveheart
1 month ago

Banana government,shame! Why VAT on such necessities? Milking thin cow..mpana mkakawo magazitu..ndiye kumati Cannan,wat a shame in this era 21 century kumakamba za Cannan, Cannan was not even developed place during those accident times! What rheotic is this?

Shadreck
Shadreck
1 month ago

This Steve Kopoloma should be dismissed right now ! This first cause of smuggling is the tax level in Malawi much more higher the one in the neighboring countries ! MRA wants to kill the country, citizens, we have to arrest them now to protect the future of our kids

Mphatso Sikawa
Mphatso Sikawa
1 month ago

Ndimavetsera mwa chidwi nkhaniyi.Koma ndagwa ulesi ndi Zomwe Me Kapoloma akuyankha.Mukuti muyitanitse ma Drones?Kodi chatsitsa dzaye ndi chani?Mesa ndi nsonkho wokwera pa mafuta.Pomwe mukuyang’ana za ma Drones taganizirani za ma citizen Kaye.Ine ndiri ndi shop ya ma groceries,ndikuwona momwe mpamba ukuchepera kamba ka nsonkho.Katundu wa 1million ngati 500 thousand.kukoma 2L pano wafika pa 3500 kuti tipange phindu.Pamenepa mpokamba za ma Drones osati zotsitsa Vat.Ndalama za ma Drones tsitsirani misonkho.Because here it shows government has money to waiste

Don Dada
Don Dada
1 month ago

Osamaganiza modontha. They don’t have to lower anything. They need to get purchase some drones to be monitoring the borders. They rain hell fire on those smuggling (lock them up for ages). Osati reducing tax… Komanso this is a wake up call to Malawians that they shouldn’t be using cooking oil in everything they eat. Eat in a healthy manner

Jah
Jah
1 month ago
Reply to  Don Dada

kuteleku kukanika kudzudzula uku. The higher the taxes the more people will smuggle in

nafundo zalo
nafundo zalo
1 month ago

zikutuluka pano zosezi zinalipo ndipo mabwana kucita kukhala ndi ma dobadoba owapangila smuggle bwa!!!

Jacob Kumwenda
Jacob Kumwenda
1 month ago
Reply to  nafundo zalo

Inu dziko lathula just want to collect revenue from poor people, Imagine the introduction of 10% excise duty to plastics, some are benefiting osamalipira because the company is small pamene ma company akulu akulu are suffering for the same, iziii zikupangitsa kuti ma companies ena azisafalapo apaa pamene boma lili pheee kudya money, anthu pano they prefer buying goods from china chifukwa zathuzi zikudula because of so called taxes. Come on Goverment reduce the taxes to avoid smuggling.

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