Tax reforms costing businesses

The Malawi Confederation of Chambers of Commerce and Industry (MCCCI) says some of the tax reforms government introduced are adding a cost to businesses and leading to loss of revenue by the tax collector.

MCCCI chief executive officer Chancellor Kaferapanjira told Business News on Sunday that this is because reforms introduced during the presentation of the 2018/19 National Budget do not reflect the desires of a better business environment proposed by players in the private sector, but more focused on generation of government revenue at the expense of boosting private sector development.

EFDs were introduced in 2014 to increase VAT collections

He said in the 2018/19 budget session, for instance, there was a revoked provision to recover costs for procuring electronic fiscal devices (EFDs); but value added tax (VAT) operators are still expected to meet the cost of purchasing EFDs under the Taxation Act.

“At the onset, we were told that businesses will get a refund for the purchase of EFD but they never mentioned when there will be a cut-off point. Now, because tax collector Malawi Revenue Authority [MRA] is saying we are not going to fund the cost of these anymore, this now has to be included as a cost to business.

“Furthermore, the budget introduced the term withholding agents where there will be registration of these withholding agent to impose the tax liability on the withholding agent where there is failure to withhold the Non-Resident Tax. What we are seeing at the end of the day is that these are reducing our profits and in turn, the revenue which was supposed to be collected by government,” he said.

MRA introduced EFDs—an advanced version of an electronic cash register in 2014, with the first phase rolling out on March 6 and the second on October 1 2014. The assumption was to increase VAT collections by 20 percent.

EFDs are being introduced following the enactment of the law in July 2011 to introduce and enforce the use of these devices.

Then MRA commissioner general John Biziwick told journalists in Blantyre in March 2014 that the rollout of EFDs 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.

In essence, the devices were to be free of charge because all VAT operators that would procure, install and use the EFDs within the stipulated timeframe would benefit from a cost-recovery scheme by claiming 100 percent cost of the device from MRA through subsequent VAT returns.

In a separate interview, taxation expert Emmanuel Kaluluma said in some rural places where they are forcing people to have EFDs, businesses can’t use them because there are no sales.

“Unfortunately, now it has become a condition. So the businesses will not settle an invoice if there is no EFDs, so government is the one losing out,” he said.

According to Kaluluma, one EFD costs a minimum of K300 000.

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