Cooking oil prices should not have been increased because of VAT—MRA source

By Duncan Mlanjira

Prices of refined cooking oil have been increased and the manufacturers attribute it as due to government’s decision to introduce 16.5% value added tax (VAT) on their products but impeccable sources at Malawi Revenue Authority (MRA) contend that the increase in the products should have been justified in relation to other factors and not the VAT as claimed.

In his 2021 National Budget presentation in Parliament last September, Finance Minister Felix Mlusu had said cooking oil manufacturers need not raise prices of their commodities since tax measures will enable them to claim input VAT when one purchases goods or services liable to VAT.

Finance Minister Felix Mlusu in Parliament last

But the cooking oil manufacturers have since increased the prices, attributing it to VAT and they have since lobbied to the Finance Minister through a letter dated September 14 to review or withdraw the VAT as it might trigger serious negative multiplier effects in the economy.

Edible Cooking Oil Association of Malawi, a grouping of five manufacturers, also argued that if the price of the products was to be incrased, it will allow room for massive smuggling of the product from neighboring Mozambique, Zambia and Zimbabwe where there is no VAT applied on it.

CAMA Executive Director, John Kapito

Even Consumer Association of Malawi (CAMA) contend that the tax measure will affect a lot of Malawian consumers as well as lead to job losses.

Following the increase of cooking oil prices, CAMA executive director John Kapito told the media that he feels vindicated having warned earlier that the VAT would result in increase of prices.

Kapito has also joined the Edible Cooking Oil Association to lobby Treasury to remove the VAT, saying the decision to reintroduce the tax measure was retrogressive.

But in his Budget presentation in Parliament, Minister Mlusu had said the introduction of the standard rate of 16.5% VAT on refined cooking oil was to ensure efficiency in the VAT system.

He had taken cognizance that previously refined cooking oil was VAT exempt and manufacturers were not able to claim tax refunds on their input VAT.

“This measure will now allow manufacturers to claim input VAT,” he had said. “I wish to inform this august House that local manufacturers of refined cooking oil continue to benefit under the Industrial Rebate Scheme where raw materials are imported without payment of duty.

“In addition, under the Surcharge Tariff regime, the local manufacturers are protected from adverse competition. In this regard, arbitrary price increases especially by local manufacturers reflecting the full VAT adjustment on the refined cooking oil is not expected.”

This has been collaborated by senior members of staff at MRA, who say that when manufacturers buy their raw materials to produce the cooking oil, they pay VAT.

“That is their input VAT,” said one source. “When they sell their products they charge VAT — that is their output VAT. 

“The input VAT and the output VAT can only be netted off if there is VAT on the product. In that regard since there is claiming of the input VAT it does not become a cost to the manufacturer.

Input tax is on raw materials

“Prices should, therefore, not have been affected in any way. In fact, they should have gone down.”

Asked if there are challenges being faced by the manufacturers to claim the input VAT, our source at MRA said the system is not failing but that at times there are delays in giving out refunds.

“However, this is being looked into. VAT requires that returns be submitted every month. If the taxpayer is in an excess situation they may lodge a claim for a refund,” said the source.

For now the lobby should wait for Parliament

When asked that if the input VAT can be claimed, why then was it factored as a tax measure in the first place instead of just letting it as it was, our source contended that “as a tax measure, it needed a change in the substantive VAT law and Parliament had to come in”.

He added that only Parliament has the mandate to effect the change being lobbied for by the manufacturers in conjunction with CAMA.

“After lobbying with the Finance Ministry, they have to wait for the next budget session of Parliament for the proposal to considered.

“Otherwise, the price increase that they have effected should have been justified in relation to other factors and not the VAT as they claim,” said the source.

A 2litre bottle of Sunflower cooking oil was at K2,225 but it now up by 32% to K2,945 while its 5litre bottle is at K6,545 up from K6,075 (8% increase).

Kukoma’s 2litre bottle was at K2,335 but now at K2,795 (20%) while its 5litre bottle is up from K7,000 to K7,045 (0.64%).

Sunfoil’s 2litres is at K3,290 from K2,774 and 5litre at K6,395 from K6,000.

Sunseed CEO Semmer Ahmed is quoted in last week’s papers that they had no option but to increase the prices in order to meet costs and avoid cutting jobs.

Coronavirus alert