The Malawi Revenue Authority (MRA) has said the increase in prices of cooking oil by manufacturers should not be related to the re-introduction of 16.5 percent Value Added Tax (VAT) on the essential commodity.
Head of Corporate Affairs Steven Kapoloma said this on Friday when the Authority held a media workshop with members of the Association of Business Journalists (ABJ) to explain and clarify new tax measures.
He said the re-introduction of 16.5 percent VAT on cooking oil should have resulted in the reduction of prices of the commodity.
“The cooking oil should have been more expensive when it was exempted from VAT simply because the manufacturers could not claim input VAT. When cooking oil was exempt, the VAT that comes with input is absorbed as part of the costs on inputs. This therefore increases the cost of the product or production cost,” he explained.
He said the re-introduction of 16.5 percent VAT on the cooking oil would allow oil manufacturers to claim input VAT.
“When a product moves from exempt to being taxable at standard rate, the cost of production is reduced. This is the case because input VAT will no longer be a cost. The taxpayer is allowed to claim the VAT on inputs,” Kapoloma said.
Kapoloma said it was even surprising that manufacturers had hiked cooking oil prices by almost 30 percent following the re-introduction of 16.5 percent VAT on the commodity.
The re-introduction of 16.5 percent VAT on cooking oil follows the amendment of the First Schedule to the VAT Act.
During the media workshop, Domestic Taxes Technical Officer Kondwani Malangwasila made tax presentations on the amendments to the VAT Act and the Taxation Act.
As far as the Taxation Act amendments are concerned, he said Section 2 and 15 of the principal act had been amended while the Eleventh and Fourteenth Schedules had been replaced.
He said the tax-free threshold for Pay As You Earn (PAYE) had been increased from K45,000 to K100,000 per month or K540,000 to K1, 200,000 per annum with effect from 3rd November 2020.
“The next K2.9 million per month or K34.8 million per annum is taxed at 30 percent. The excess of K3 million per month or K36 million per annum is taxed at 35 percent. The 15 percent bracket has been removed,’’ he said.
Malangwasila said the Fourteenth Schedule to the Taxation Act had been replaced and the amendments included the increase in the tax-free threshold for casual labour from K15,000 to K35,000 per transaction. He said payment in excess of K35,000 for casual labour will be charged at 20 percent.
“Besides that, a 20 percent Withholding Tax on winnings from betting and gambling transactions including lotteries has been introduced. Winnings means any payment made to any person who wins a bet or a gamble including lottery.
ABJ executive member Chikondi Manjawira expressed gratitude to MRA for organising the media workshop.
“We would like to thank MRA for inviting us to this media workshop to clarify the amendments and their implications. We now have a better understanding of the amendments and this will assist us in our reporting,” she said.
The tax amendments came into effect on 3rd November 2020 when they were gazetted.
