Firm to cut 25% jobs due to VAT on cooking oil

The impact of 16.5 percent value-added tax (VAT) reintroduced on refined cooking oil continues to be felt, with the latest being plans by Agri Value Chain Limited (AVC) to cut 25 percent of its jobs.

The plan by AVC, manufacturers of Purola cooking oil, to lay off 50 employees out of 200, follow a 30 percent increase in the price of refined cooking oil effected by manufacturers in reaction to VAT and increased smuggling of the product from Mozambique where there is no tax.

In a statement on Saturday signed by AVC operations manager Rajneesh Dabral, the firm reiterated that one of the impacts of the reintroduction of VAT has been the influx of illegal cooking oil from neighbouring Mozambique.

He said: “We are not selling the cooking oil as we used to because people are not buying. If we are not selling, it means we cannot produce more.

“If we are not producing, it also means we cannot buy consumables such as firewood and coal. We also cannot keep the manpower that we have.”

Dabral decried free flow of cooking oil from Mozambique into areas such as Mangochi, Ntcheu, Dedza and Lilongwe.

“There has been a significant drop in sales and it is going to have a negative impact on the cooking oil industry and the jobs,” he said.

Besides that, Dabral said industry players were on an expansion drive as well as value addition on existing plants and structure, but said the reintroduction of VAT will further weaken the industry confidence.

In his earlier reaction, 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 and affect jobs.

“We warned that the price of cooking oil will go up when the Minister of Finance reintroduced 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.

In an earlier interview, Semeer Ahmed, chief executive officer of Sunseed Oil Company, justified the increase in the price of refined cooking oil, saying it is a reflection of the standard rate of VAT introduced in the 2020/21 K2.2 trillion National Budget passed on October 14.

But in a statement, MRA said the re-introduction of 16.5 percent VAT was not expected to culminate in price increases on cooking oil as manufacturers would claim input VAT.

Reads the statement: “When a commodity is exempt, the VAT that comes with input is absorbed as part of the costs on inputs. This, therefore, increases the cost of the product or production cost.”

MRA said when a product moves from exempt to taxable at standard rate, the cost of production is reduced and it was, therefore, expected that the re-introduction of VAT would not result in price hikes as manufacturers would claim input VAT.

Last week, Cutrade Traders, one of the cooking oil distributors said demand for cooking oil has dropped.