Castel Malawi says future‘compromised’ over taxes

Castel Malawi Limited, manufacturers of alcoholic and non-alcoholic beverages, says it feels penalised by Treasury’s decision to effect 60 percent excise tax on malt beer.

The firm’s managing director Hervé Milhade said in an internal communication which Nation Online saw on Wednesday that the 60 percent tax on ex-factory price or sales price is higher for its operations.

He said this means that taxes have jumped by 22 percent on clear beer, compared to the 90 percent they were paying on production cost.

Milhade said Treasury has increased the firm’s tax amount by more than 30 percent, considering the increase in other categories.

He observed that the future of the firm “is compromised if we don’t find an agreement with authorities on this tax issue”, adding that retrenchment plans will be performed and reshaped regarding this perspective for the time being.

Said Milhade: “Despite many meetings during which the company demonstrated and explained to ministers, parliamentary committees and professional associations, the need to reduce our level of taxation… the budget confirms excise tax rate on malt beer would be 60 percent on ex-factory price.

“Our discussions, negotiations and confirmation letters have always proposed that the tax applied be ideal to enable us have a win-win situation, where the company makes money to run healthy operations and in turn allow the government to collect taxes that contribute to the development of the country.”

He said he will be leaving for Paris, France, to present the “difficult situation” to Castel Group, after which the decision will be communicated internally with full transparency.

Tax expert Emmanuel Kaluluma said now that excise tax calculation is based on production cost and mark-up, how much one loses out depends on their profit margins.

He, however, said government ought to have done a proper analysis before effecting the new tax as “government too can lose out on tax revenues from the employees in the case of retrenchments”.

Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief executive officer Chancellor Kaferapanjira yesterday described the reduction of excise tax on malt beer as a welcome ‘correction’ in aligning with regional rates, emphasising that the  base for taxation must remain production cost as before and not sales revenue.

He said the reduction of excise tax on malt beer gave the impression that the beer industry may be saved from becoming extinct, but the new excise tax rate will continue to apply on production cost.

Last week, Castel said it will implement the second phase of retrenchment this month, four months after the company, which took over from Carlsberg Malawi Brewery, threatened to close its business in protest of high excise tax rate of 90 percent after failing to negotiate with Malawi Revenue Authority (MRA) on the matter.

The company announced its planned retrenchment of 300 employees owing to its struggling business.

Castel Malawi is rated as one of the top 10 taxpayers in the country, contributing to the development of the economy for over 50 years and is also the number one taxpayers of import duties.

The company employs 1 284 people and has a business network of over 100 000 stakeholders, customers, suppliers, distributors contractors, locally and internationally.