* MRA should be supported by other authority bodies like CFTC, FIA, CAMA, ACB, Fiscal police not to relent
* MRA is trying to reinforce leaking taxes while shop owners feel the system is preying on their businesses
* As Northern Region Business Association calls off planned demonstrations against MRA after government invited it for dialogue in Blantyre
Analysis by Duncan Mlanjira
Following the resistance from a pocket of traders, who closed their shops in protest against the implementation of Electronic Invoicing System (EIS) by Malawi Revenue Authority (MRA), some economic experts have defended the government tax collector, saying it is just reinforcing against tax returns leakages.
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They contend that the protest by the pocket of traders is suspect that they might have detected loopholes and profited from using the old system of electronic fiscal devices (EFDs), which have become obsolete following global advances in technology.
After MRA disclosed on Tuesday at a press conference that over 7,500 out of 9,000 value added tax (VAT)-registered operators have already onboarded onto the EIS and are seamlessly transacting on the platform, an analyst suggests that MRA should be supported by other authority bodies like Competition & Fair Trade Commission (CFTC), Financial Intelligence Agency (FIA), Consumer Association of Malawi (CAMA), the Malawi Confederation of Chamber, Commerce & Industry (MCCCI), and other stakeholders that the national tax collector should not to relent in the administration of the law.
Several also faulted the business persons’ target of MRA, saying the national tax collector is just an enforcement agency of the law, and, if anything, the right procedure is to engage Parliament to amend the law which the august House passed for the enrollment of the EIS as according to the Taxation Act.
One analyst observes that the authorities have been complaining of tax evasion for a long time but it is perplexing that the right system to deter any tax evasion has been made available through the EIS — but it is being protested against.
“Something is not adding up,” said our source, whom we do not mention. “Intelligence shows most shop owners have been selling goods and services while jumping the issuance of receipts, since the previous systems were weak.
“The new system tracks your goods and services and once found in breach, there are hefty fines. Another question that needs to be responded is; why are citizens avoiding taxes? Is it too much, is it they don’t see what the taxes do in return to developing the nation?”
EFDs have become obsolete
Another expert, whom we also do not name, shared on a HardTalk business forum that through the EIS system, “every VAT-registered business must issue invoices through MRA-linked devices/software. Each sale is sent to MRA servers in real time.
“The goal is to stop tax evasion, issuance of fake receipts and under-declaring of sales and the benefits leveling the playing field, since competitors cannot cheat by not issuing VAT receipts and in turn the VAT refunds are faster since MRA can verify VAT inputs instantly.
“The system also offers businesses a chance for cleaner accounting books as there is less manual paperwork through auto-sales records for the accountant and alss builds the customers’ trust since the receipts have QR code — customers knowing it’s legit.”
The analyst — who is in sync with what MRA has been preaching ever since it announced the introduction of EIS mid last year — further says it is also handy for loan access as commercial banks trust MRA-verified turnover when one applies for credit.
He also observed that an EFD costs between K400,000–K1.2 million, its software integration is about K200,000 and needs internet 24/7, saying “for small shops in Blantyre townships with challenges to ESCOM and internet, sales stop when system is down”.
“Before, some businesses delayed declaring cash sales to manage cashflow but now MRA sees every sale instantly. VAT is payable immediately even if the customer hasn’t paid you yet.”
Another school of thought observed that “the main concern of business operators is not just VAT itself, but how taxes are affected by foreign exchange shortages in Malawi”.
“When businesses import goods from outside the country, they need US dollars. The problem is that official bank forex is often not available or not enough. So, what happens is that many businesses end up buying forex on the parallel market, where the exchange rate is much higher than the official bank rate.
“Now here is where the problem starts; when they later account for their taxes, MRA uses the official exchange rate to calculate value. But the business actually spent much more money in real time because they used the black market rate to get forex.
“So in simple terms, the real cost of importing goods is very high when factoring the black market rate as opposed to the lower official rate. This creates a mismatch.
“Businesses feel like they are being taxed on figures that don’t reflect reality. It makes their costs look lower than they really are, or their profits look higher than they actually are. That leads to what they call unfair tax pressure.
“So their argument is basically this: they are not trying to avoid tax, but they are operating in a system where the official exchange rate does not match the real market they are forced to use to survive.
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“So in short, the standoff is about two things — the government wants strict tax compliance and full VAT remittance but the businesses are saying the system does not reflect real economic conditions, especially with forex shortages and parallel market rates.
“The calculation of landed cost of imported goods is basically the same regardless of the exchange rate at which the forex was acquired,” said our source but another analyst counter-argued, saying: e-invoicing is not an income tax system, it’s a VAT compliance tool used by MRA.
“However, it supports income tax audits by creating a reliable record of sales. MRA can compare VAT invoice data with revenue declared in tax returns. For example; if VAT invoices show K2 million in sales, but the tax return shows K1 million, the mismatch will likely trigger an investigation.
“The bottom line is that e-invoicing doesn’t calculate profit tax, it acts as an audit trail to detect underreported income.
“The Zimbabwe Revenue Authority (ZIMRA) introduced its fiscalisation and e-invoicing system in 2010. During the initial rollout and subsequent updates, the authority encountered significant network and technical challenges.
“These included issues related to connectivity, infrastructure limitations, and device compatibility. While the system is now operational, some challenges persist, particularly in relation to technical integration.
“Given this experience, it is reasonable to question whether the Malawi Revenue Authority could have benefited from consulting and drawing insights from counterparts such as ZIMRA. Such engagement might have helped anticipate potential challenges and implement measures to mitigate them during rollout.”
At the press conference today at Msonkho House, Commissioner General, Felix Tambulasi emphasised that by having over-7500-out-of-9000-vat-registered-operators-already-onboarded-onto-eis-and-are-seamlessly-transacting-on-the-platform, “this is a strong indication that the system is workable and beneficial”.
“EIS offers numerous advantages — it is cost-effective, web-based and eliminates the need for expensive hardware. It also provides businesses with enhanced capabilities, including real-time monitoring of transactions and better stock management.”
For those who are still encountering challenges and need some guidance during the onboarding, MRA says it is committed to supporting taxpayers during the onboarding period, assuring that MRA teams are working around the clock to provide technical assistance.
Also available if the MRA Call Centre, which remains available to respond to all enquiries related to EIS by just dialing Toll-free 672 — or to visit any of the MRA stations for any technical assistance, which is available 24/7.
“We will be offering free targeted technical support to taxpayers who may still require assistance. During this period, however, VAT operators will not be allowed to use EFDs,” said the Commissioner General.
Meanwhile, Northern Region Business Association yesterday announced that it has called off planned demonstrations over concerns surrounding MRA’s EIS after government invited the grouping for dialogue in Blantyre.
Leonard Njikho addressing the protesters
A report by Malawi News Agency (MANA) quotes the association’s vice-chairperson, Leonard Njikho saying they believe and have confidence in dialogue and and respect to the government’s willingness to listen to concerns raised by stakeholders.
He emphasised that they are committed to working with government in improving tax paying systems that support national development while addressing challenges faced by business operators.
Njikho added that the business community is not against paying taxes but seeks a system that is fair, efficient and supportive of business growth — thus he expressed optimism that the forthcoming talks in Blantyre will yield positive outcomes for both government and the private sector.
Some members had already gathered in Mzuzu before the cancellation was announced, which the leaders allowed to proceed with the protest from Katoto Secondary School to the MRA offices where they explained the change of plans and urged them to remain peaceful.
Police officers accompanied the demonstrators to maintain order and ensure the situation remained calm during the brief movement, who obliged signaling growing cooperation between government institutions and the business community in addressing economic matters through peaceful engagement.—Reporting for MANA by Pollinah George & Tamandani Mulilima
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