A month after Parliament passed the 2020/21 National Budget which introduced 16.5 percent value added tax (VAT) on refined cooking oil, manufacturers have responded by increasing the price of the commodity.
This is despite Minister of Finance Felix Mlusu assuring the public that cooking oil manufacturers will not have to raise the price because the tax measure will enable them to claim input VAT—tax added to the price when one purchases goods or services liable to VAT.
Business News spot-checks in some of the shops show that a two-litre bottle of sunflower cooking oil, which was selling at K2 225, has gone up by about 32 percent to K2 945 while a five-litre bottle is now selling at K6 545, an eight percent increase from K6 075.
On the other hand, a Kukoma Cooking Oil two-litre bottle, which was at K2 335, is now selling at K2 795, representing a 20 percent increase while a five-litre bottle has gone up by 0.64 percent to K7 045 from K7 000.
Sunfoil Cooking Oil in a two-litre bottle is now at K3 290 from K2 774 while a five-litre bottle is selling at K6 395 from K6 000.
In an interview yesterday, Semeer Ahmed, chief executive officer of Sunseed Oil Company, justified the price increase, saying it is a reflection of the standard rate of VAT introduced in the K2.2 trillion National Budget passed on October 14.
He said: “VAT on refined cooking oil was implemented on the assumption that the price of cooking oil should not be increased.
“Instead of cutting jobs due to the VAT which has increased our costs, the only option to avoid loss of jobs is to keep on raising the price of cooking oil.”
His views resonate with what Edible Cooking Oil Association of Malawi , a grouping of five cooking oil manufacturers, wrote in a letter dated September 14 2020 addressed to Mlusu, pleading with him to review or withdraw the tax.
The grouping feared that the tax will trigger serious negative multiplier effects in the economy, including an increase in the price of the product and smuggling of banned cooking oil from Mozambique, Zambia and Zimbabwe where there is no VAT on refined cooking oil
In an interview on Wednesday, Consumers Association of Malawi executive director John Kapito said they feel vindicated as they earlier warned that the tax measure will result in increased price of cooking oil.
“We warned that the price of cooking oil will go up when Minister of Finance re-introduced the VAT which was removed in 2017. This tax measure will affect a lot of Malawians who consume cooking oil and may also affect jobs in the long run,” he said.
Kapito said they will lobby Treasury to remove the VAT, observing that the decision to re-introduce such a tax measure is retrogressive.
Ministry of Finance spokesperson Williams Banda was not immediately available for comment yesterday.
But he earlier said besides claiming input VAT paid on inputs or raw materials, the oil manufacturers will also benefit from the Industrial Rebate Scheme where raw materials are imported without duty.