Ibam speaks out on car hire duty waiver

The Indigenous Businesses Association of Malawi (Ibam), the mother body of local entrepreneurs, has said the removal of duty free waiver for car hire operators is choking the survival of the business.

It is now two years since government in the 2010/11 financial year increased the excise duty applicable to car hire operators from zero to 20 percent.

According to government, the 20 percent rate applies on the existing concessionary rate of 10 percent of import duty and 16.5 percent value added tax (VAT).

Despite extensive lobbying over the past two years, government has not moved an inch to revise the tax measure, arguing that there is “evidence that there has been abuse of the duty waiver”.

But Ibam interim president Mike Mlombwa said it is high time government considered bringing back the duty waiver to boost the car hire industry.

“We understand that the facility was abused by businesspersons who are not even in car hire business. Some business operators were buying vehicles under the guise that they will be used for car hire business when in fact they were being sold on the local market.

“This affected government’s efforts to maximise on tax revenue,” said Mlombwa, who is also managing director of Countrywide Car Hire.

He said taking into account the current economic situation, the price of vehicles have gone up over the past years, arguing that the cheapest vehicle on the market is a Toyota Corolla which is now valued at not less than K14 million (about $35 000).

Mlombwa said when the duty waiver was in place, a number of car hire companies were performing well and making profits, but now the situation is different.

“In car hire business, there is need to change fleets regularly because customers want to travel in vehicles that are new and can take them to places of their choice without any breakdowns. So, replacing the fleet means having to raise money and, with the duty waiver in place, a number of operators benefited immensely,” he said.

Mlombwa said they have over the past years sought the intervention of government, but to no avail.

In related development, the car hire operators are now in the final stages of forming a grouping that could enable them to interface with government particularly on issues that concern the business.

The Malawi Chamber of Commerce and Industry (MCCCI) and the Society of Accountants in Malawi (Socam) every year suggest to government the taxes they feel should be incorporated in the budget to help in the improvement of business climate for the private sector to play its role as the engine of economic growth.

Their presentations highlight areas in which government can improve its economic governance and taxation system for the betterment of both the private sector and the government.

In their submission to Lipenga during the pre-budget consultation in Blantyre, Socam said it is paramount that government must collect revenue to finance its operations.

“Socam is of the view that the best strategy to enhance tax revenue is for government to create a conducive business climate, and support business growth so that Malawian businesses become more profitable.

“And the good news is that the more profits businesses make, the more government will earn through its 30 percent corporate tax,” said the professional tax body in its submission.

Socam asked government to concentrates on areas which can broaden its tax base and also find means of efficiently collecting non tax revenue.

This, the body says, will increase government’s revenue pool which will aid its operations for a better Malawi.

Earlier, government was, among others, asked to suspended transfer pricing assessments being implemented by the Malawi Revenue Authority (MRA) until due process has been followed and adequate expertise developed in the tax collecting body.

Transfer pricing is one of the most important issues in international tax and it happens whenever two related companies, for example, a parent company and a subsidiary trade with each other.

According to tax experts, transfer pricing is not illegal or abusive, but what is illegal or abusive is transfer mispricing, also known as transfer pricing manipulation or abusive transfer pricing.

Transfer pricing mainly affects multinationals and, because of this, most of them feel harassed, a situation that has compelled them to put on hold their investment plans until the issue is clarified.

This issue has been ongoing on for some time and there is a feeling that it is impacting heavily on business confidence regarding the fairness of the country’s tax regime.

The professional tax body has also recommended a review all the agreements and update them as necessary as this could be a potential area for government to realise additional tax revenues.