The World Bank has said Malawi’s tariff system lacks transparency, a development that depresses exports growth as well as stifling the country’s trade competitiveness.
In its first edition of the Fiscal Monitor Report, the Bretton Wood institution observed that Malawi is collecting tariff revenues from a limited number of import flows.
“The tariff system is non-transparent and complex and could be simplified in line with existing commitments,” reads part of the report.
The report said average tariffs are comparable to those in Malawi’s neighbouring countries, with tariffs for agricultural imports generally higher than those for industrial products.
The simple average of tariffs for Malawi in 2013, according to the report, was 12.4 percent while trade-weighted applied tariff average was 7.4 percent.
Malawi applies 24 different tariff rates, depending on the type of product involved and where it comes from. However, 98.5 percent of all products enter the country under just three tariff rates of zero, 10, and 25 percent.
“Two-thirds of these tariff rates results from the gradual implementation of regional commitments to reduce tariffs under the Comesa and Sadc treaties and many of these are nuisance tariffs of below five percent,” said the bank.
More than half of all imports into Malawi enter at zero rates of duty; a further 32 percent entering under tariff lines with a statutory duty of 10 percent, according to report.
Malawi continues to implement regional and bilateral preferential trade arrangements under Common Market for Eastern and Southern Africa (Comesa) and Southern Africa Development Community (Sadc).
However, the country also grants exceptions for imports for government and military use, international organisations, diplomats and returning migrant workers and end-user specific rebates or duty remission schemes.
“As a result of widespread tariff exemptions, effective import duty collection by the Malawi Revenue Authority [MRA] only amounted to 3.4 percent, compared to the trade-weighted tariff average of 6.9 percent in 2012,” said the report.
The report has also noted that due to the complex structure of the tariff system, with many possible duty rates, there is a significant degree of uncertainty on many import transactions as to which tariff rates should apply.
It said in an environment with limited controls, a complex tariff system enables corrupt practices, with informal payments being made to classify goods in a way that allows for the payment of lower import duties.
Larger and “better connected companies,” said the report, are better able to manage a complex tariff system and to negotiate preferential treatment, granting them a competitive advantage. This enables them to avoid or reduce the payment of duties; thereby out-pricing their competitors on the national market.
Ministry of Industry and Trade spokesperson Wiskes Nkombezi told Business News yesterday that government through relevant agencies exercises high level of transparency and accountability by, among others, publishing tax and tariff-related information online.
He cited public tax collector Malawi Revenue Authority (MRA) which he said strives to update the public on tax performance such as import tariff in a number of ways.