Small and Medium Enterprises (SMEs) say it will be a huge relief if the plan by government to open a tax refund account at Reserve Bank of Malawi (RBM) to reduce delays in tax refund claims materialises.
For a long time, businesses have been on the neck of Malawi Revenue Authority (MRA), particularly on claiming input value-added tax (VAT)—tax added to the price when one purchases goods or services liable to VAT.
Some businesses complained that it takes close to a year for them to receive tax refunds from MRA, a development which affects their working capital, because the tax collector takes time to assess the claims.
Minister of Finance, Economic Planning and Development Goodall Gondwe, in the 2014/15 budget, announced the administrative measures in which funds will be readily available for use by MRA in tax refunds.
“This policy aims at improving VAT compliance and ensuring timely processing of tax refund claims by the Malawi Revenue Authority. Ministry of Finance, Economic Planning and Development and the MRA have put in place stringent measures to ensure that only bonafide claims are honoured through this account,” he said.
Economic Empowerment Action Group (Eeag) executive director Lewis Chiwalo toldBusiness News on Thursday the move is timely and welcome.
“We applaud the move by government because this means that tax refund claims will be made on time. We understand that there are a number of small-scale businesses that face challenges in terms of tax refunds claims. For some, it usually takes more than a year and this affects their capital inflows,” he said.
Chiwalo said the measure is expected to improve operations of SMEs because working capital would not be disturbed.
Commenting on the development, Small and Medium Enterprises Association (Smea) president James Chiutsi said cash flow is a huge problem facing SMEs and the idea to ensure that tax refunds claims are made in good time is commendable.
“If money meant to be refunded to businesses is withheld by MRA, it affects their operations. Now that the money will be remitted in time, it will help in the smooth operation of the businesses and increase their profitability,” he said in an interview.
MRA has this year, in pursuit of widening the tax base, introduced Electronic Fiscal Devices (EFDs), that records all sales transactions and provide evidence of such transactions in a technically easy and undisputed way.
MRA hopes VAT collections will jump by 20 percent following the introduction of EFDs because they will play a critical role in improving efficiency and effectiveness in the administration of VAT—a form of consumption tax levied on the purchase price—and also level the playing field.