With only a few weeks before the Malawi’s Minister of Finance Ken Lipenga tables the 2013/14 budget, the Society of Accountants in Malawi (Socam) has proposed to government to introduce an option of cash accounting, especially for small businesses and contractors.
This, they argue, is because their debt collection periods are usually long and the amounts involved can be huge.
“This would allow small traders and the contractors to pay taxes only on cash sales and on invoices for which money has been received. Similarly, no credit would be taken for items bought on credit until the relevant invoices have been paid for,” says Socam in a write-up of submissions to be incorporated in the forthcoming budget whose session opens on May 17.
The professional tax body has also requested that the monthly filing requirement of value added tax (VAT) returns should be extended to quarterly filing for all except for the largest payers to lessen the cash flow and administrative burden of this tax.
As of now, any VAT that is charged on invoices is expected to be remitted to the Malawi Revenue Authority (MRA) within the following month regardless of whether payment has been received on those invoices or not.
This, according to Socam, causes cash flow problems to businesses, especially where the invoices are not subsequently settled promptly.
Generally, in business, it is expected that debtors may settle their debts in 30 to 90 days.
Socam further observes that the provision for making VAT claims in the VAT Act is that a taxpayer can only lodge a claim for VAT refund if the businessperson’s VAT account is in excess for three consecutive months.
“For large taxpayers especially those in the financial sector who commit huge finances in high value deals like leases, it is obvious that they will always be in excess. Waiting for three months to make a claim and another three months delay in getting a refund processed results in effectively tying up investment finance at no return for long periods.
“However, if a taxpayer delays in remitting tax that is due to government, penalties are levied on the amounts owing,” says Socam.
The body has since recommended that government should pay interest at the same rate as the applicable penalty if there is undue delay in effecting tax refunds.
This, according to Socam, is being increasingly legislated for, worldwide, on the basis that loss of use of money in either direction warrants interest.
The body also recommends that the public tax collector publishes on its website businesses that are registered for VAT so that those making payments can verify that the suppliers charging VAT are registered and will remit the same to MRA.
On the refund of withholding tax, Socam argues that most of the corporate and formal sector professional practice taxpayers, especially in the service industry who suffer withholding tax end up in a net tax refund situation.
This effectively affects the cash flow position of the businesses because cash needed for operations is tied up for long periods in the tax withheld.
Earlier, Socam requested government to introduce a uniform and lower withholding tax rate. Government has been asked to consider introducing an option for the submission of a quarterly tax return for the claiming of the withholding tax other than by the annual returns only.
Additionally, all operators who qualify for self-assessment should be allowed to net off their refundable withholding tax with other taxes payable such as provisional tax or Pay As You Earn (Paye).
This will significantly assist businesses in their cash flow management challenges, says Socam.
Socam has also asked for the reconsideration of Export Processing Zone (EPZ), which was abolished sometime back, to encourage exports which could boost foreign exchange reserves.
Socam believes that the issues of abuse cited by government should be dealt with using the EPZ licence renewal mechanism rather than blanket abolition.
“We note that the current investors business models were premised on the EPZ status and their overnight abolition is negatively impacting on the business performance and viability. Socam recommends that the EPZs should be re-introduced,” says Socam.