One of the local companies has faulted Malawi Revenue Authority (MRA) for accusing cooking oil manufactures of increasing the price by 30% following the introduction of the Value Added Tax (VAT) on the commodity.
Recently, MRA officials, said the increase in prices of cooking oil by manufacturers should not be related to the re-introduction of 16.5 percent VAT on the essential commodity.
One of the traders, who did not want to be mentioned before they present their grievances to MRA, said the increase in price of the refined cooking oil is related to the increase of crude oil on the international market as well as re-introduction of VAT.
“In June and July we were buying crude oil at $750 per tonne but now we are buying $11,250 so how do you expect us to operate successfully. The price of crude oil keeps on increasing. So the increase in prices reflects both VAT re-introduction and increase in crude on the world market,” said the source.
MRA’s Head of Corporate Affairs, Steven Kapoloma said the re-introduction of 16.5 percent VAT on cooking oil should have resulted in the reduction of prices of the commodity.
“The cooking oil should have been more expensive when it was exempted from VAT simply because the manufacturers could not claim input VAT. When cooking oil was exempt, the VAT that comes with input is absorbed as part of the costs on inputs. This therefore increases the cost of the product or production cost,” he explained.
He said the re-introduction of 16.5 percent VAT on the cooking oil would allow oil manufacturers to claim input VAT.
“When a product moves from exempt to being taxable at standard rate, the cost of production is reduced. This is the case because input VAT will no longer be a cost. The taxpayer is allowed to claim the VAT on inputs,” Kapoloma said.
Kapoloma said it was even surprising that manufacturers had hiked cooking oil prices by almost 30 percent following the re-introduction of 16.5 percent VAT on the commodity.
The re-introduction of 16.5 percent VAT on cooking oil follows the amendment of the First Schedule to the VAT Act.
Meanwhile, Agri Value Chain Limited who manufactures Pulora Cooking through its subsidiary company has joined calls for the government to seal porous borders to stop the influx of smuggled cooking oil which is affecting their business.
“One of the impact of reintroduction of VAT has been influx of illegal oil from neighbouring Mozambique. Reports are coming of Mozambican oil flowing freely into areas like Mangochi, Ntcheu, Dedza and Lilongwe. This illegal influx will lead the local manufacturers lose their sales as it’s really a daunting task to stop this smuggling as we have porous borders with Mozambique.
“This illegally brought edible oil often has quality issues which even MBS has recognized. This defeats the MBS drive to avail consumers a quality and certified product. There has been a significant drop in sales and it’s going to have negative impact on the oil industry in the country,” said the company’s Senior Operations Manager Rajneesh Dabral in a statement.
The statement further stated that the scrapping of VAT on essential product like cooking oil had greatly relieved the general masses and almost capped the illegal flow of oil from Mozambique and elsewhere.
“Moreover, quite a few industry players were on an expansion drive as well as value addition on existing plants and structure. The reintroduction of VAT in such times will further weaken the industry confidence. The Industry has made an humble representation to the government to reconsider this issue in the interest of all, the industry and the consumers,” the statement read.
In a separate interview Dabral said 50 out of 200 could be retrenched next due to loss of business as a result of VAT reintroduction.
“If the situation remains the same then we will likely retrench 50 and similar steps could follow in future,” he said.
Last week another Balaka-based cooking oil distributors Cutrade Traders also bemoaned smuggling and hinted on trimming personnel.
Records show that since 2017 when the Vat on cooking oil was scrapped off, the cooking oil sector flourished, buoyed and this is evidenced by the growth in revenue from oil sales achieved by the cooking oil manufacturers from the past three years.