Edible Cooking Oil Association of Malawi (Ecoam), a grouping of five cooking oil manufacturers, claims that the re-introduction of the 16.5 percent value added tax (VAT) has reduced their sales by about 50 percent.
Ecoam chairperson Jayshree Patel said in an interview on Wednesday evening in Blantyre on the sidelines of a news conference that the development could lead to job cuts in an industry that employs 13 000 people.
He said between 30 percent and 35 percent of the workforce will have to lose their jobs as they are not producing.
Patel said the firms have also been hurt due to the influx of smuggled cooking oil from neighbouring countries such as Mozambique and Tanzania where there is no VAT on cooking oil.
He said: “Our sales demand has dropped by 50 percent as customers are now flocking to the unsafe and cheap oil which is smuggled into the country.
“Our expansion projects have been put on hold because prospects for the industry are bleak.”
In a separate interview, Satyendra Kalal of Mount Meru Petroleum Limited, said the companies had no choice but to effect the upward price adjustments in view of the VAT.
“Industries produce with various raw materials sourced from local and international markets where prices change from time to time,” he said.
On September 14 2020, Ecoam wrote Minister of Finance Felix Mlusu to review or withdraw the tax.
But in response on February 9 this year, Secretary to the Treasury Chauncy Simwaka said the VAT cannot be reversed midway through the budget considering that the legal instruments were already passed by Parliament.
He said: “We have, however, taken note of the concerns and the team in the Treasury in consultation with other key ministries will review how the VAT on cooking oil has performed as part of the 2021/22 Budget review process.”
Meanwhile, spot-checks in some shops show that prices of cooking oil have increased by between 30 and 50 percent.
Consumers Association of Malawi executive director John Kapito said in an interview on Wednesday they feel vindicated as they earlier warned that the tax measure will result in increased price of cooking oil.
But in an earlier statement, Malawi Revenue Authority head of corporate affairs Steve Kapoloma argued that the re-introduction of 16.5 percent VAT on cooking oil should have resulted in the reduction of prices of the commodity instead prices have gone up.
He said: “The cooking oil should have been more expensive when it was exempted from VAT simply because the manufacturers could not claim input VAT.
“When cooking oil was exempt, the VAT that comes with input is absorbed as part of the costs on inputs.”
Members of Ecoam include Capital Oil Refining Industries Limited, Sunseed Oil Limited, Agri Value Chain Limited, Mount Meru Petroleum Limited and Moti Oil Mills Limited.