Malawi court rules against traders: ‘Tax devices EFDs will not kill your business’

The High Court in Blantyre has dismissed fears by some VAT operators that the implementation of Electronic Fiscal Devices (EFDs)—an advanced version of an electronic cash register -will cause loss of businesses.

The Malawi Revenue Authority (MRA)  introduced  EFDs   in a bid to  improve efficiency and effectiveness in the administration of  value added tax (VAT)—a form of consumption tax levied on the purchase price—and also level the playing field.

But some four traders sought a High Court intervention to recall an EFD Stay Order which was vacated on July 29, 2014.

Kamoto: MRA boss
Kamoto: MRA boss

However, in a ruling delivered by Justice Michael Tembo on Friday August 8, 2014, rejected an application by  traders Imran Meman trading as Kamlisha Enterprises, Mansoor Ibrahim trading as Mansoor Wholesalers, Azizur Rahman Vali Patel trading as Aziz’s Cash and Carry and Nasser Ahmed trading as Food City Take Away.

“This Court is not convinced that the applicants business will be killed due to the introduction of the EFDs for VAT by the respondent (MRA),” said  Justice Tembo in his determination.

Among the allegations, the traders referred to high receipt and maintenance costs of the EFDs as some of the major challenges that may force their businesses to halt.

The traders also complained about the standard handling fee on repairs of the EFDs as another source of expenses at K15,000 per each repair episode.

The Court, however, deemed the traders assertions as contrary to the original reasons they filed the stay order.

“The applicants initially sought to challenge the EFDs on account of irregularities and frustrations it will bring to business but now shift to say it will cause loss of business.

“This shows that most the applicants are driven by unsubstantiated fears that they will suffer in their businesses due to the Electronic Fiscal Devices,” added Justice Tembo.

The Court therefore crushed the VAT Operators claims terming them as exaggerations.

“One deponent of the applicants, Mr Rashid, said that he was previously using a receipt costing K4. But now with the EFDs the receipt to be used is a thermal specially designed receipt that has security features and costs K20 per receipt. There is however no proof given in evidence that K20 is the correct price per receipt. It would equally be an exaggeration,”

Justice Tembo further said there was no evidence to show that the EFDs would cause businesses to incur very high costs with regard to the thermal till-roll that is more expensive than the ordinary receipts used by the VAT Operators.

MRA’s lawyer in the case who is also the organisation’s Manager for Legal Affairs (Technical and Drafting), Chris Likomwa, argued that the applicants have unfounded fears as none of those involved in the pilot have lost business at all.

Likomwa further argued that the VAT operators will not be at a disadvantage given that the EFDs are being rolled out in phases and will eventually cover all businesses.

Meanwhile, MRA has resumed all EFD operations and is therefore advising all VAT operators who are in the first phase and have not yet bought the machines to do so now.

The introduction of the EFDs follows the legal changes that were made in 2011 to the Value Added Tax Act, mandating MRA to introduce the fiscal devices. The legal changes made it mandatory for all VAT operators to acquire and use these machines when making each sale transactions.

The EFD machines record and transmit all sales transactions to MRA which helps in the collection of accurate VAT from traders. The EFDs are already in use in Tanzania, Kenya, Ethiopia and other countries.

MRA commissioner of domestic taxes Nellie Jimu is on record saying the tax collector has been facing tax compliance challenges that include the suppression of sales, non-issuance of tax receipts/ invoices, non- remittance of VAT collected, undervaluation of tax receipts/ invoices, using multiple sets of business records and non -disclosure of branches and associated businesses.

She said EFDs record all sales transactions at the point of sale, have fiscalised memory, which means data cannot be erased, produce fiscalised receipts and uses GPRS/mobile network connectivity to transmit the data to MRA central server.

MRA  with new commissioner general Ralph Kamoto , hopes with EFDs the tax base will widen and VAT collections jump by 20 percent.

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