Tax consultant Emmanuel Kaluluma has asked authorities to expedite the process of imparting skills to relevant stakeholders to ensure that transfer pricing regulations bear fruits.
Kaluluma, who is a senior consultant at EK Tax Consultant, said in an interview on Monday that enacting laws is not enough to combat transfer pricing if officers are not trained to detect such cases.
He said: The officers must be given skills to be able to detect that there is transfer pricing involved.
“Countries such as Malawi are vulnerable because we rely on investments from outside, so the investor wants to shift the money back where he can. So, we need to improve infrastructure, controls and political stability.”
The country’s transfer pricing regulations contained in Chapter 41:01(Taxation Act) of the Income Taxation Act, Taxation Transfer pricing regulation 2009, was replaced by new legislation on transfer pricing on July 1 2017.
This regulation provides guidelines for determining the arm’s length price for supply and transfer of goods and services; administrative rules, including the types of records and documents required by the commissioner general of taxes.
However, a fortnifght ago, Reserve Bank of Malawi (RBM) Governor Dalitso Kabambe said Malawi is suspected to have lost $394.60 million (about K240 billon) to illegal externalisation through transfer pricing by several multinational companies operating in the country.
He admitted that 54 years since independence, Malawi has experienced massive plunder of foreign exchange due to illegal foreign currency externalisation and transfer pricing, which have greatly undermined the country’s economic development efforts.
Said Kabambe: “It is disheartening to report that some companies in Malawi are involved in transfer pricing for tax avoidance. This $394.60 million is a large percentage of what Malawi has as its foreign exchange reserves.”
In an interview, local economist Donasius Pathera said the Taxation Act needs to be beefed up with laws that should empower Malawi Revenue Authority (MRA) to deal with those abusing transfer pricing regulations.
“In response to the uncertainty and risk to which corporations are exposed by transfer pricing, in almost all countries, there are possibilities of avoiding protracted disputes with tax authorities through advance pricing agreements,” he said.
UN Conference on Trade and Development estimates that profit shifting by multi-national companies costs developing countries $100 billion (about K74 trillion). n