The Malawi Consumers Association (CAMA) calls blackmail the continued attempt by refiners and producers of edible cooking oil to demand the government remove the 16.5% value added tax (VAT), which the government reintroduced it last year.
In a statement released Monday, CAMA said it has consistently condemned the continued blackmail of edible cooking oil manufacturers in the country, “who needlessly seek the attention and sympathy of consumers and the government.”
Earlier this year, manufacturers attributed the increase in refined cooking oil prices to the reintroduction of VAT on the product – a rationale that CAMA, together with the Malawi Revenue Authority (MRA), contested. later.
At a press conference held in April. According to their findings, CAMA Executive Director John Kapito said that the increase in the price of the commodity is due to many factors, including the increase in world crude oil prices, not VAT.
At the press conference, which was also attended by a representative of the Cooking Oil Manufacturers Association, Kapito said CAMA was successful in convincing the government to remove VAT from cooking oil in 2015, with the anticipation that prices would have to fall so that the rural masses can afford the product, which is enhanced with vitamin A.
“But six months after the removal of VAT in 2015, product prices have risen again, showing that other factors have played a role as most manufacturers only import crude oil and refine it.” , Kapito had said.
“The price increase should not be justified by the fact that it comes from VAT, because if it was, it should have been 1.6%. But here we see an increase of 52% for Mulawe and 38% for Kukoma just for a 500 liter bottle. “
In Monday’s press release, Kapito says manufacturers have long preferred to import petroleum raw materials from Eastern countries like Malaysia and India and “always at high prices rather than using local raw materials. cultivated by our farmers “.
As he reported in April at the press conference, Kapito adds that Malawian farmers grow a lot of soybeans, peanuts and sunflowers that are used in the production of edible cooking oils, but that over the years , they have failed to find markets for their products.
This, according to Kapito, is because local manufacturers choose to buy crude oil “from their own country of origin.”
“In recent years, Malawi has been producing its own cooking oils using its own local raw materials,” he said. “We all remember Uniliver or Lever Brothers producing COVO and Kazinga with links to our local farmers.
“These were top quality locally made products and you may recall that the vernacular for cooking oil was ‘Mafuta a Mtedza’ – which means it is cooking oil. produced from peanuts The full name of the acronym for COVO was Cooking Vegetable Oil – also from local agricultural raw materials.
“It is shocking and surprising that today most of the cooking oil available on the market is mainly imported from other countries. It is therefore shocking that today the government of Malawi allows an association of refiners / producers of cooking oil materials from their home countries and denies our local farmers access to markets. “
Kapito says manufacturers are demanding a number of government tax incentives “for a product that has no added value for Malawians, especially farmers and consumers.”
“CAMA has long lobbied the government to empower local Malawians by connecting them with local farmers to start producing local cooking oils. There is no magic science in the production of cooking oils that would require someone to come from another planet.
“Cooking oil refiners hold the government and consumers to ransom as if no one else can produce cooking oil in Malawi.
Malawi has extensive technical expertise supported by many graduates from our technical colleges and universities who may be resourced to go into production and link with our farmers to start producing Malawian cooking oils locally. “
He concludes by saying that importing crude oil “is an abuse of scarce resources” and that CAMA calls on the ministries of trade and industry not to grant licenses to import crude oil to oil manufacturers. existing cooking facilities.
“We also noted that the two ministries of trade and industry are part of state-owned institutions and do not control their mandates – hence compromised,” he said.
In their rationale, the manufacturers said they had to increase the price of the commodity because the world prices of the crude oil they import were increasing and continuing to fluctuate.
They said it was the same trend in neighboring countries such as Mozambique and Zambia, whose prices are also similar to those in Malawi, but with the introduction of VAT it means that prices had to increase. even more.
In an exclusive interview in April, the head of public relations of Capital Oil Refining Industries Limited (CORI), Violet Kapolo gave the example of Mozambique, which does not charge VAT on cooking oil and has conducted without qualms about starting to smuggle the goods and sell them in Malawi. at prices lower than local products.
She had said that contraband oil comes loose in 20-liter buckets that local manufacturers sell the most.
Kapolo had said before the reintroduction of VAT that “traders did not bring contraband oil because the prices were the same as Mozambique, so it made no business sense to import.”
“But when we had to factor in the VAT, it allowed the smugglers to make huge profits on the imported cooking oil, so consumers chose to buy the contraband product.”
But CAMA and MRA have stood their ground, saying smuggling has always been around and “it hasn’t increased because of the VAT, but evidence of illegal trade is inundated on social media with photos of traders. unloading their cargo at Tsangano at Ntcheu and other entry points.
Kapito and Kapoloma also strongly attributed the price hike as global crude oil prices rose as well and so they had to follow suit.
“Let’s hear here that VAT has nothing to do with increasing prices,” Kapito said at the press conference. “There are many factors and that includes the global crude oil trends that you have told us about here.”
In his presentation of the 2021 national budget to Parliament last September, Finance Minister Felix Mlusu said cooking oil manufacturers do not need to increase the prices of their products because the tax measures will allow them to demand input VAT when purchasing goods or services subject to VAT.
But when manufacturers raised prices further, they lobbied the finance minister with a letter dated September 14 to review or remove VAT as it could trigger serious negative multiplier effects in the economy.
Edible Cooking Oil Association of Malawi, a group of five manufacturers, had indicated that if the price of the products were to be increased, this would allow massive smuggling of the product from neighboring Mozambique, Zambia and Zimbabwe where there is no no VAT applied. above.
Initially, CAMA had joined in the condemnation of the tax measure believing that it was indeed the reintroduction of VAT until now when the watchdog of consumers made its own analysis – in which it agreed with the Minister of Finance.
In his budget presentation, Mlusu said that the introduction of the standard 16.5% VAT rate was aimed at ensuring the efficiency of the VAT system – given that previously refined cooking oil was exempt from VAT and that manufacturers were unable to claim tax refunds on their inputs. VAT
“This measure will now allow manufacturers to claim input VAT,” he said. “I wish to inform this august Assembly that local manufacturers of refined cooking oil continue to benefit from the industrial rebate program where raw materials are imported without payment of duty.
“In addition, under the surcharge regime, local manufacturers are protected from unfavorable competition. In this regard, arbitrary price increases, especially from local manufacturers, reflecting the full adjustment of VAT on refined cooking oil are not expected.
According to senior sources at MRA, when manufacturers buy their raw materials to produce cooking oil, they pay VAT – “which is their input VAT and when they sell their products, they charge VAT – that is their output VAT.
“Input VAT and output VAT can only be deducted if there is VAT on the product. In this regard, since there is input VAT claim, this does not become a cost for the manufacturer.
“So the prices shouldn’t have been affected in any way. In fact, they should have gone down.”
When asked if input VAT could be claimed, why then was it taken into account as a tax measure in the first place instead of just leaving it as it is, our source replied that “as a measure tax, there had to be a change in substance The law on VAT and Parliament had to intervene “.