VAT exemption on cooking offers relief

The removal of value added tax (VAT) on cooking oil has ignited excitement,  with consumers and producers indicating the decision is timely.

Minister of Finance and Economic Affairs Sosten Gwengwe announced last week in Parliament during the presentation of the K2.84 trillion National Budget Statement that government has with immediate effect removed VAT on cooking oil.

But the minister said the key contributing factor for the high cooking oil prices is the huge increase in prices of imported raw materials used for the production of cooking oil.

“It is my belief that this gesture will be reciprocated by the cooking oil manufacturing companies by reducing cooking oil prices henceforth,” he said.

But in an interview on Monday, Oilseeds Producers and Processors Association president Peter Ngoma described the removal of VAT on cooking oil as progressive for consumers and growth of the local oilseeds industry.

He said: “It is true that VAT made locally manufactured cooking oil uncompetitive to imports from Mozambique and Zambia, where there is no VAT.

“So, the removal of VAT has levelled the playing ground and will also curtail smuggled cooking oil.”

Ngoma said the removal of VAT will increase demand for locally produced cooking oil, which will be cheaper and competitive.

But he said the rise in global prices of raw materials such as crude oil and shipping costs could induce a rise in local prices.

 Ngoma said: “In the case of Malawi, prices are exacerbated  by the scarcity of forex to timely pay for such imports, thereby escalating the prices further.

 “As long as the global prices remain high and forex remains scarce due to Covid-19, the gains from removal of VAT may be overtaken by such global trends, but the cushion to consumers of removing VAT cannot be underestimated regardless of these global trends.”

Consumers Association Malawi executive director John Kapito in an interview on Tuesday expressed satisfaction that the budget has addressed the issue of VAT on cooking oil, adding that this  offers hope to consumers.

He said: “We are expecting to see lower prices of cooking oil. We have always argued against the collection of VAT on this product and we are pleased to see the government addressing the issue.

“What we are hoping to see now is a reduction of the product on the market.”       

VAT on cooking oil, which was re-introduced in the 2020/21 financial year, compelled cooking oil producers to increase the price of the commodity to levels consumers deemed unbearable.

This was despite assurance from the Treasury that cooking oil manufacturers do not have to raise the price because the tax measure would enable them to claim input VAT, which is tax added to the price when one purchases goods or services liable to VAT.

But cooking oil prices have since the re-introduction of  VAT gone up with prices of the commodity.

For example,  a two-litre bottle of Kukoma cooking oil, which was selling at K2 335 before the VAT, is now selling at about K5 000.