Malawi VAT exemption on milk pushes output cost
The exemption of milk from value added tax (VAT) compels manufacturers to absorb input VAT as a cost which increases production price for processors, a dairy industry player has said.
If a product is zero-rated, it is VAT taxable, but the tax is zero percent, and if VAT on milk is to be restored, it will entail importers claiming input VAT from the Malawi Revenue Authority (MRA).
Input VAT is the value added tax added to the price when one purchases goods or services liable to VAT.
Dairibord Malawi Limited managing director Theodora Nyamandi told Business Review on Tuesday that prices for local products are not competitive on the market because of imports of finished products (milk) with zero input VAT, which comes in duty-free and VAT free.
“Request for government to either zero-rate milk or restore VAT on milk so that input VAT is claimable has not been fruitful,” she said.
In the 2014/15 budget, Minister of Finance, Economic Planning and Development Goodall Gondwe made some interventions of VAT which includes the removal of VAT on raw materials used in the production of fertiliser and medicine to support local industries in these sectors to promote import substitution.
Nyamandi’s take on VAT was in the context of the 2014 half-year financial results for its parent company, Zimbabwe-based Dairibord Holdings Limited (DHL), which indicated that weak performance at the group’s Malawi unit negatively affected overall growth of the milk portfolio.
DHL blamed the decline in raw milk intake in Malawi by 35 percent on quality challenges, product mix and price adjustments to retain market competitiveness.
During the period, according to the group’s chairperson Leonard Tsumba, milk intake went down four percent to 12.7 million litres from 13.3 million litres in the half-year to June 2013 while sales volume decreased by six percent to 29.9 million litres from 32 million litres.
DHL indicated that the Malawi unit has deployed a number of strategies to restore milk intake volumes.
Nyamandi explained that Dairibord Malawi has invested in training and capacity building to improve skills and quality.
“Dairibord has invested and will continue to invest in additional collection centres to reduce the distance farmers travel with warm milk before it is chilled. Dairibord is also looking at options for backward integration to increase milk supply at commercial level and improve the quality of raw milk for use in long life products. This will enable us to grow into export,” she said.
Nyamandi, however, said the national milk production is growing at an average of 10 percent per year, but said quality of raw milk is not always assured.
This, she said, affects the company’s ability to produce long life products such as UHT and cheese—products that are in demand in the export market.
“The current limitation is consistent supply of good quality raw milk to sustain the exports.
Apart from efforts to grow milk supply base, Dairibord [Malawi] has a diversified product portfolio that includes fruit juices and milk-based beverages. Dairibord also produces ice-creams that do not require large volumes of milk to produce,” Nyamandi said.
The Malawi Milk Producers Association (Mmpa) recently said the country’s livestock sector is still dogged by a number of challenges such as shortage of dairy cattle, lack of donor support and low milk production, among others.
Mmpa national director Herbert Chagona said availability of feed of sufficient quality is usually the limiting factor which has culminated into poor quality of many cows, hence low milk production.
