Malawi Confederation of Chambers of Commerce and Industry (MCCCI) has said the removal of output value added tax (VAT) on milk will promote imports.
This is, however, contrary to Minister of Finance, Economic Planning and Development Goodall Gondwe’s expectations of encouraging local farmers to produce more milk for the market and boost the market for milk in the country.
In an interview with Business Review on Monday, MCCCI chief executive officer Chancellor Kaferapanjira said with no output VAT and no import tax on milk, foreign imports will ruin local processing companies on the basis of price competition as the milk will be imported in the country VAT-free.
He said some inputs for processing milk attract VAT, hence, removing VAT paid by a consumer without removing the industry’s input VAT means the processor cannot claim its input VAT anymore.
“The processor cannot even claim such VAT from government since milk has become exempt. Consequently, the processor will end up treating its input VAT as part of cost of producing the milk. As a result, the price of milk is likely to remain almost as before since it will include input VAT,” said Kaferapanjira.
He said with this development, milk will now be imported into Malawi without VAT and if Malawi milk processors continue paying VAT on some of their production inputs when milk is imported into Malawi VAT free, foreign imports are going to decimate local processors on the basis of price competition whereas Malawi will be left with no milk processing industries to talk about.
Gondwe announced the withdrawal of the output VAT on milk on Friday when the presented he K1.29 trillion budget for the 2017/18 fiscal year.
Malawi Milk Processors Association (Mmpa) national director Hebert Chagona said since VAT was imposed on milk, the farmgate price of milk dropped from K175 to K155 per litre thereby putting the incomes of 15 000 small holder farmers at stake.
In response to the removal of VAT on milk, Chagona told Business Review on Friday that this was a good development and hoped the milk processors will respond quickly by raising the farm gate price to more than K175 per litre.