Employers Consultative Association of Malawi (Ecam) has warned that some firms could be forced to fire workers following the 16.5 percent value added tax (VAT) to be levied on pension administration fees effective September 1.
Ecam executive director George Khaki said in an interview on Sunday that employers were not consulted on the VAT payable by firms or organisations.
He said: “We work as social partners with government where consultations are critical to matters of labour and employment.
“The implementation of VAT on pension administration fees is ill-timed at a time companies are struggling to meet pension obligations and business volumes have gone down.”
Khaki said though the VAT could be claimable in some instances, it nonetheless makes the cost of employment high and is bound to stress companies further.
Despite efforts to enforce timely remittance of pension contributions, non-remittance continues to rise, with Reserve Bank of Malawi figures indicating that total pension contributions amounting to K20.2 billion were outstanding by the end of 2019, a rise from K13.1 billion reported in 2018.
Meanwhile, Malawi Congress of Trade Unions has written Malawi Revenue Authority (MRA) to pend the implementation of 16.5 percent VAT on pension administration fees.
In a letter dated August 21 2020 and copied to Secretary to the President and Cabinet, Secretary to Treasury and Ministry of Labour, MCTU said this will enhance job protection during the Covid-19 pandemic.
MCTU secretary general Denis Kalekeni suggested that this tax measure should be implemented after the impact of Covid-19 has minimised.
He said: “Alternatively, MRA should levy whatever tax, if this could be within the law, on the actual pension administration fees so that the tax burden should be shouldered by the pension administrator other than enforcing an additional expense on the employer, lest we are bound to experience unprecedented job losses.”
MRA head of corporate affairs Steve Kapoloma on Thursday said the tax collector is only implementing section 16 of the VAT Act, which deals with VAT on supply of services.
“Pension administrators charge an administration fee for managing pension schemes. The fee attracts VAT like any other fee charged on taxable services.”
Kapoloma said according to the VAT Act, pensions contributions do not attract VAT, but fees for administering the pensions contributions attract VAT.
“The VAT charged on fees is paid by the employer who is the recipient of the pension administration service,” he said.
Last week, Gerald Chima, Nico Pensions Services Limited general manager said the tax measure will increase the cost of pension to employers by 1.5 percent, but each employer will need to check if their VAT status allows them to claim this tax.
The Pension Act 2010 makes pension funds remittances mandatory and under it, employers are mandated to enroll their employees on pension scheme.
Under the law, employees contribute a minimum rate of five percent while employers are mandated to remit 10 percent of the employees’ monthly gross salary which aggregates to 15 percent monthly.