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.

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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