Withdrawal of new fixed duty on importation of second hand vehicles exposes weak governance—chief economist Chifipa Mhango

* Minister Gwengwe says the figures considered to be new taxes for imported second hand vehicles were wrongly calculated by MRA

* He has since directed MRA not to processed with system of clearing second hand vehicles

By Duncan Mlanjira

Revered South Africa-based Malawian economist observes that the decision by Minister of Finance & Economic Affairs, Sosten Gwengwe to hold back the implementation of new Custom duty on vehicle importation “exposes weak governance issues on the functioning of the current Government”.

After a meeting a held with Malawi Revenue Authority (MRA) and Car Dealers Association of Malawi in Lilongwe, Gwengwe announced that Government has reversed the decision to introduce the new system of clearing second hand motor vehicles — observing the figures considered to be new taxes for imported second hand vehicles were wrongly calculated by MRA.

Gwengwe has since directed MRA not to processed with system of clearing second hand vehicles and he also described as untrue claims that government had adjusted upwards the duty on imported second hand vehicles and has since recalled the document as the system will not be implemented.

But Chifipa Mhango — who is Chief Economist for Don Consultancy Group in his host country, South Africa — contends that “the Ministry of Finance is — by responsibility and function — a custodian of government expenditure and revenue collection, which implies that any decision that presents a policy shift and with huge implications on the economy and businesses at large, requires the approval of a Parliamentary budgetary process as well as Cabinet”.

“However, the matter of vehicle importation duty into Malawi, therefore, cannot be done by Malawi Revenue Authority without the process of approval by Ministry of Finance. 

“I, therefore, welcome the decision to hold back on the implementation. I would also recommend that Malawi Government, through its Ministry of Finance, be more active on its approach towards administration of the revenue collection functions to avoid regular embarrassing situations.

“Vehicle importation duty is a tax matter and its proposed changes cannot just be done in the middle of a financial year when the National Budget has been passed and approved.

“This can be a serious reflection of limited adherence to governance issues on part of the administration, and needed consultation first with affected stakeholders before announcing anything. 

“Malawians will remember that there was also an issue of toll gates taxes increases that had to be renegotiated down. The proposed custom duty on imported second hand vehicles was not only unreasonable but also insane from those responsible and very uncalculative move economically for the middle class,” said Mhango.

As soon as it was announced, Forum for National Development (FND) and Malawi Human Rights Defenders Coalition (HRDC) raised voice against the government’s new tax system — with HRDC describing it as “unrealistic and punitive taxes on the citizens — hindering economic growth and impeding the rights of individuals to engage in economic activities”.

HRDC gave the government a 7-day ultimatum to engage with different stakeholders and address the issue and if it fails to do so, after the said 7 days, it was going to tell Malawians the next course of action.

While appealing to all concerned Malawians to join it on July 26 to present a petition to Parliament in order for august House to force the repeal or reduction in terms of high duty for second hand motor vehicles.

In a public notice, FND national coordinator, Fryson Chodzi said they were “disgusted with the level of arrogance demonstrated by the MRA in an attempt to justify the unjustified published duty cost for second hand motor vehicles”, saying this was of concern that “this policy is retrogressive and pushing a lot of people into poverty especially that Malawi has no public transport system”.

FND is also “worried that the new gazetted prices for second hand motor vehicles entails that honest civil servants, teachers, nurses, workers, soldiers, police officers and business people will not afford to buy a motor vehicle”.

On its part, HRDC said: “The concerning aspect of this law is that it was passed through Parliament without proper consideration of its actual impact on ordinary citizens. Members of Parliament, who are exempt from paying taxes on their vehicles, do not experience the burden of these punitive taxes, which highlights the inequality within the system.

“Therefore, HRDC advocates for the abolition of duty-free privileges for public officers and Members of Parliament.”

In its defence, MRA held a press briefing on Monday in response to media platforms which were awash of the new tax regime, saying the specific tax — which was to be implemented from next Saturday, July 15 — was to relinquish powers that the collection body had and give it to motor vehicle importers which they said is good in as far as determination of duty is concerned.

Deputy Commissioner responsible for facilitation under Customs and Excise, Chimwemwe Kawalewale said what MRA has done is just to change a way of determining duty of cars: “All along MRA has been using an ad valorem tax whose amount is based on the value of a transaction or of a property,” he said.

“The duty was typically imposed at the time of a transaction which caused a lot of problems. This led to people saying the tax collecting body is over charging duty because it is different with what they planned for. Now, Parliament approved other tax measures like specific tax which has put fixed duty to cars according to their size, type and year of make, among others.

“This has given power to car buyers because the new measures provide predictability of duty to be paid and will not be charged extra amount in all borders.”

Kawalewale gave an example of 2022-2023 financial year, in which MRA headquarters received a total of 290 duty appeal cases from different borders and out of this, 254 were appeals from used vehicle buyers which represents 87.6%.

“You can see that it was important to have specific duty to avoid misunderstandings between MRA and customers as this was portraying bad image to the institution. Usually, specific tax is given to items or goods that are difficult to determine its value like used cars and second-hand clothes”.

Head of Corporate Affairs, Steven Kapoloma said the new tax was driven by importers themselves and that MRA is just administering it after government followed all procedures including passing through parliament.

Kapoloma said all along there has been challenges when it comes to calculation of duty in all used cars hence importers proposed the idea of having specific tax saying the new measure is in line with international standards.

“This means there will be no frequent disputes when it comes to clearing of vehicles. On several occasions people have been forging documents to reduce the price of vehicles so that duty can also be low.

“The matter is history now. No one will cheat his or her friend that can do something to reduce duty at the border. MRA was surprised that similar cars were being charged different duties because someone is using fake documents.

“Now cars have been put in bands meaning when buying, everyone will know the duty to be paid. The new measure is easy to administer because the value is prescribed. This will give proper planning for all car buyers.”

Kapoloma added that during 2021-2022, 2022-2023 and 2023-2024 budget consultations, many people including importers suggested for specific tax which they said would reduce misunderstandings when it comes to vehicle clearance at the border.

He said the new measure is fair and has ended corruption when it comes to clearance since it has provided uniformity on duty issues.