Debate rages on cooking oil VAT

Tonse Alliance Government proposes (VAT) Tax on cooking oil in the 2020/21 National Budget

Post was last updated: September 29, 2020

A debate has ensued on impact of the proposed introduction of Value Added Tax (VAT) on cooking oil in the 2020/21 National Budget.

A snap survey by The Daily Times has established that on average, prices of cooking oil went up in September by 52 percent.

For example, a two liter bottle of cooking oil, which was selling at K1,900 is now being sold at K2, 900.

When presenting the budget in Parliament recently, Minister of Finance, Felix Mlusu, said to ensure efficiency in the VAT system, the government has introduced a standard rate of 16.5 percent VAT on refined cooking oil.

Mlusu was quick to mention that arbitrary price increases especially by local manufacturers reflecting the full VAT adjustment on the refined cooking oil is not expected.

However, a similar decision was rescinded by the previous government in 2017.

According to Malawi Government gazette (VAT Amendment Act) Number 25 for 2017, VAT was exempted on animal or vegetable fats and oils and their cleavage products, prepared edible fats, animal or vegetable waxes under customs tariff subheadings 1501.00.00 to 1522.00.00.

In a recent interview, Consumers Association of Malawi (Cama) Executive Director, John Kapito, said introduction of the tax on cooking oil would lead to a surge in prices.

But Treasury spokesperson, Williams Banda, said yesterday that the decision was made based on suggestions from industry players.

“With the introduction of the standard rate of 16.5 percent VAT on refined cooking oil, local manufacturers will now be entitled to claim input VAT paid on inputs or raw materials with respect to the production of the refined cooking oil.

“This will therefore, cushion the local manufacturers as tax authorities will now be able to effect VAT refunds. It should be appreciated that technically the VAT refunds could not be allowed when the refined cooking oil was VAT exempt,” Banda said.

He added that local manufacturers of refined cooking oil continue to benefit under the Industrial Rebate Scheme where raw materials are imported without payment of duty and only VAT is applicable.

Tax expert, Emmanuel Kaluluma, said in a separate interview that the fears for increased prices of cooking oil are legit but the move to reduce the cost of production through the regime is welcome.

“What we have to accept is that VAT is a consumer tax. The argument from the government side is that to produce a litter of cooking oil there are components such as packaging material which they were paying VAT on but because they were not claiming input tax they were passing that cost to the consumer.

“Now what will happen is the VAT that they will pay to produce a litter of cooking oil, they will claim it and it will reduce their VAT tax thereby reducing the cost of production and should also reflect on the price of the product” Kaluluma said.

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