Milk Producers Association of Malawi has asked Treasury to scrap off the three percent withholding tax on milk at the bulking group and introduce a cap for milk importers.
In its 2021/22 National Budget proposal, the association argued that milk is the only product subjected to withholding tax among all the agricultural products from subsistence farmers.
The association has also asked Treasury to restrict issuance of import permits for milk and milk products, introduce excise tax on all milk powders and milk products of maximum 25 percent from 15 percent and remove milk powder repackaging operations from the Industrial Rebate Scheme.
In an interview on Tuesday, the association’s national director Herbert Chagona said with limited supply of milk at the milk bulking group, subsistence dairy farmers are discouraged from selling their product through the formal channel, which is already affected by the current price of K182 per litre offered by the milk processors.
This, he said, compels milk producer to resort to vending the milk.
Chagona said by removing the tax, which came into effect in June 2020, milk volumes in the formal sector would increase, which could push up milk per capita from five litres per person per year to 25 litres per person per year.
He said: “As the proceeds from milk do not belong to the bulking group, it is the individual farmers that are effectively taxed. Since the rates are applied on the gross amount that is due to a bulking group, dairy farmers do not enjoy the thresholds, rendering their tax burden to be higher than other businesses.
“As the three percent withholding tax is discouraging dairy farmers from bulking their milk at a cooling centre, it is high time this tax on milk was removed to provide an enabling environment for dairy farmers to be in line with farmers of other agricultural products.”
Withholding tax is an advance payment of income tax that is deducted from specified payments. A person making the payment deducts the tax.
Although the Taxation Act stipulates these amounts are claimable upon submission of a return of income, the association argues that dairy farmers, for instance, Shire Highlands Milk Producers Association, have outstanding claims amounting to K50.3 million which Malawi Revenue Authority (MRA) is yet to remit.
In an interview on Tuesday, MRA head of corporate affairs Steven Kapoloma said that while tax is claimable, the challenge with some farmers could be on the modalities done to get the claims.
He, however, since this is a policy decision, Treasury was better placed to respond as MRA only implements such policy decisions.
Treasury spokesperson Williams Banda said on Tuesday this is a proposal for the forthcoming budget whose consultations are under way.