Manufacturers of cooking oil and wheat flour have decried rampant smuggling due to porous borders, saying if left unchecked it could collapse the local industry.
Smuggling is being heighten by the 16.5 percent value added tax (VAT) on wheat flour introduced in 2016 and the same situation is expected to worsen in the cooking oil industry following the proposed introduction of VAT in the 2020/21 National Budget.
In an interview yesterday, Venkatesh Rao, general manager of Bakhresa Malawi Limited, one of the wheat manufacturers, said the introduction of VAT has reduced capacity utilisation of wheat mills to below 25 percent.
He said millers cannot compete with cheap smuggled flour from Mozambique and Tanzania where there is no VAT.
“These issues are adding cost to the manufacturing of wheat flour in Malawi, making it uncompetitive against smuggled wheat flour and giving advantage to traders and others who are involved in unscrupulous activities for their benefit,” said Rao.
He said because of this, there is no level playing field as the bakeries buying locally produced flour cannot compete with the bakeries using smuggled flour.
“This will give a wrong signal to long-term investors who can do massive investments to generate employment and pay taxes,” he said.
An official in the cooking oil industry said they are expected to suffer in different ways following the proposed introduction of VAT.
He said: “Neighbouring countries, including Mozambique do not have surtax on cooking oil.
“As such, there is rampant smuggling of cooking oil from Mozambique which threatens to cripple the local industry.”
The official said when government removed surtax on cooking oil, prices for local cooking oil reduced and smuggling stopped as the commodity was affordable for locals, but with the re-introduction of VAT, things are expected to worsen.
In an earlier interview, Malawi Confederation of Chambers of Commerce and Industry director of business environment and policy advocacy Madalitso Kazembe said the smuggling is a major threat to local industries.
On his part, Minister of Trade Sosten Gwengwe also admitted that smuggling is a major threat to the local industry.
Smuggling is the illegal importation or exportation of goods subject to customs control.