Court sets aside MRA determination on Illovo

The Chief Resident Magistrate’s Court sitting as special arbitrator in Blantyre has set aside an MRA determination that dismissed Illovo Sugar Malawi plc’s appeal of the authority’s decision to withhold non-resident tax for South African companies.

According to court documents, Illovo Sugar Malawi was aggrieved by Malawi Revenue Authority (MRA) Commissioner General John Biziwick’s decision dismissing its appeal seeking to persuade the tax collector that the two foreign information technology (IT) companies it contracted from South Africa are not amenable to non-resident tax.

The two companies are Bytes Systems Integration which was contracted to provide hardware services and Adapt IT (Pty) Limited contracted to provide software services.

The appeal follows MRA’s decision to reject Illovo’s request to issue the tax clearance certificate. In rejecting Illovo application, MRA argued that the source of the income is Malawi and as the law does not cover South Africa/Malawi Double Taxation Agreement of 1971 (DTA).

The authority further argued that Malawi has the prior right to tax all income from services from a source within Malawi and that the South African resident companies felt aggrieved, they should have taken the matter to South African Revenue Services for relief.

But in an appeal, Illovo argued that MRA erred in law by determining that the DTA does not cover income derived from a source within Malawi by non- resident South African persons.

The company further argued that MRA erred to demand non-resident tax on gross income payable to South African resident suppliers of services.

But in a ruling dated July 31 2023, chief resident magistrate Chisomo Msokera observed that the IT services by two companies provided to Illovo are commercial enterprises or undertakings for purposes of the South Africa/Malawi DTA.

On whether for purposes of the South Africa/Malawi DTA, the income of the two non- resident IT service providers is exempted from being taxed as non-resident tax, Msokera observed that by operation of Article 3 of the South Africa/Malawi DTA, the income of the two non-resident IT service providers is exempted from being taxed.