Edible Cooking Oil Association of Malawi (Ecoam) has written Minister of Finance Felix Mlusu, requesting him to withdraw the re-introduction of 16.5 percent value added tax (VAT) on refined cooking oil proposed in the K2.2 trillion National Budget.
In a letter to Mlusu dated September 14 2020, the five cooking oil companies under Ecoam warn that failure to review or withdraw the VAT on refined cooking oil will trigger 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.
The cooking oil producers include Capital Oil Refining Industries Limited, Sunseed Oil Limited, Agri Value Chain Limited, Mount Meru Petroleum Limited and Moti Oils Mills Limited.
Ecoam said although VAT is a revenue generator for government, such a tax has also been cited as regressive, which contributes to distributional inequality on consumption basis.
“We, the cooking oil manufacturing sector, have been fighting a long battle against smuggled cooking oil which have been flooding the Malawian market,” reads the letter in part.
Over the years, according to Ecoam, the cooking oil manufacturing sector has earned foreign exchange through exports of crude soyabean oil and soyameat, adding that such exports were possible because of VAT exemption granted in 2017.
Figures from the Department of Agricultural Research Services show that due to VAT exemption in 2017, soya bean production in the country has increased to 250 000 metric tonnes (MT) in 2020 from 137 000MT.
Reads the letter: “However, we have noted with dismay that government has proposed to bring back VAT on refined cooking oil.
“This proposal will make the industry neither competitive nor protected.”
In an interview yesterday, one top official from one of the companies outlined the practical impact of the decision to re-introduce VAT on cooking oil, which include increased influx of smuggled substandard banned cooking oil, reduction in job creation, reduction in the collection of the revenue by government and possible capital flight as investors may have to reconsider any future investments in the sector.
“It will also have a negative impact on the farmers where there is a possibility of slowdown in soya bean produce as the local manufacturers may cut down on procurement due to a slowdown in revenue,” he said.
While welcoming some suggestions from various stakeholders over the proposed 2020/21 National Budget, Mlusu said in an interview last week that he will comprehensively respond to specific concerns and proposals this week in Parliament through his winding up statement.
Both Consumers Association of Malawi and an audit and advisory firm EY recently urged Treasury to engage all manufacturers on the proposed VAT, fearing that the move could see an increase in the price of the product on the market.
Ministry of Finace spokesperson Williams Banda argued recently that with the re-introduction of the standard VAT rate on refined cooking oil, local manufacturers will now be entitled to claim input VAT paid on inputs or raw materials with respect to the production of refined cooking oil.
He also said currently, local manufacturers of refined cooking oil continue to benefit from the Industrial Rebate Scheme where raw materials are imported without payment of duty and only VAT is applicable.