MRA says VAT is tax for the future

Malawi Revenue Authority (MRA) has rolled out the second phase of Electronic Fiscal Devices (EFDs), a programme which the country’s tax collecting agency believes will improve value added tax (VAT) compliance. MRA EFD manager KONDWANI SAUTI-PHIRI explains:

What is the motivation behind the introduction of EFDs in Malawi?

The general motivation behind EFDs introduction is that generally there is low compliance from VAT operators in the sense that some do not issue VAT invoices or cash sales. Some will issue, but they will decide which amount to declare at the end of the month. Some will collect VAT from you and me as a , but they will not remit it. Some have multiple sets of books where they will choose which record to give to MRA while when they want a loan from say a commercial bank, they will present a true picture because the bank needs to appreciate that the business has a fat account. So, generally it is due to non compliance. If we are to use this device we will capture the sales that they have made directly.

Don’t you think taxpayers will find a way of beating the system?

Of course, no system is foolproof, but I think that with the enforcement measures that we have put in place, we will catch them. We recruited EFD inspectors who are in all our domestic tax offices with the majority in Zomba, Blantyre Lilongwe and Mzuzu because these are business centres. Their job on a daily basis is to go out and see who is using the machines and who is not and if one is caught not using then the law says they have to impose a penalty.

The other enforcement measure is that we need to sensitise the consumer because generally Malawians have a culture of not demanding receipts. We need to change the culture of consumers not demanding a receipt. So we have drawn a public awareness campaign where from November we will be conducting road shows in the country sensitising consumers on the need to demand fiscal receipts.

MRA has been implementing the EFD programme for some time. What is the progress so far? What are the success stories and the challenges?

One of the success stories is that the acquisition rate has been better than we expected. If I am also to compare it with other countries in Africa, we have not done badly. Of course for the first phase, we have some taxpayers who have not procured the devices but we hope that by the end of this month we should be done with the major ones.

Do we have the exact figures in terms of the number of devices that you have distributed so far and your target?

Our target for the first phase was to sell at least 12 000 devices. We slowed down because some VAT operators took a stay order. We lost about six to eight weeks. So, because of that there was a misunderstanding among the business community to say let’s wait and see. The other challenge is that there are still pockets of taxpayers out there who do not want to buy the devices for their own good reasons. Of course, we know some still want to be non compliant.

Looking backwards and comparatively, are we able to link revenue performance now to the EFDs, in the VAT tax line?

Actually I am just coming out of a meeting with the Blantyre team on the same because we are supposed to report to management after having a comparative analysis pre-EFD and post-EFD. Unfortunately for now, most taxpayers started using the devices in September. The returns which we are going to get in October will give us a clear indication on the impact. However, using the samples that I have done, yes, we can see that this taxpayer was declaring so much and he is now declaring this much because they are now forced to still use the devices to an extent. But I cannot give you a clear picture on the national scale. According to our projections we should have VAT increase of about 20 percent.

Why did you decide to implement this programme in phases?

The first phase targets those who were using manual receipts or handwritten invoices. This type makes the biggest chunk of our VAT operators, about 80 percent. Mostly it’s the retailing, wholesaling and a few service providers. We thought this is the most risky group and we thought we should prioritise the most risky taxpayers. The second phase targets those who use Point of Sale (POS) devices and computerised systems. From our analysis, those are the lesser risky taxpayers.

Do you have any other plans and programmes on the table?

The other programmes on the table are mainly to do with awareness because we know it is about changing the culture of the taxpayer as well as the consumer. So up to next year, we will be running awareness programmes. We will be conducting raffle draws from January next year to encourage consumers to demand fiscal receipts. Enforcement is ongoing and there will be no point where we will say we have stopped enforcement.

Other countries in the region have implemented EFDs, including Tanzania. What lessons have we learnt from them?

The lessons that we have learnt, especially from Tanzania, is on the part of enforcement because a taxpayer having the device in the shop is one thing and they may choose to use it or not, so enforcement is very important. Other enforcement tools that we have put in place is that we will be sending out people to pose as customers and if the shops do not issue fiscal receipts officers who will be standing somewhere will pounce on that trader. The law actually gives us the powers to prosecute if we have got enough evidence to say this taxpayer has been evading VAT through non usage of fiscal devices.

You have just rolled out the second phase of the programme, what is your word to the public?

The word to the public is that we have a grace period from October 1 to December 31 where taxpayers who will procure devices within these three months will be allowed to claim 100 percent cost of their devices. Essentially, it is government which will subsidise the cost of the devices. From January 1, those who are found not to have procured the devices, we will charge them a penalty and will not claim the cost. Again from January 1, for every VAT operator they will only be able to claim VAT if the document they are using is a fiscal document.

How much VAT does the country lose due to non tax compliance?

We lose about 40 to 50 percent of VAT at the moment and as said earlier, this programme will improve compliance. We believe that VAT is the tax of the future because countries are generally moving away from trade taxes to domestic taxes so it is important that we are able to collect more through VAT.

What are your last remarks?

The biggest buyer in Malawi is government. There will be a time when we will ask government departments, the privileged persons which includes NGOs, diplomatic missions to deal only with EFD compliant taxpayers especially from January 1 so that it is a self-policing measure.

We are also urging those in the first phase who have not procured the devices yet to get them before the long arm of the law catches up with them.