Reserve Bank of Malawi (RBM) governor, Dalitso Kabambe, says it is appalling that millions of dollars in forex continue to be moved out of the country by unscrupulous persons and companies at the expense of Malawi's economy.
Kabambe announced that in the last year alone the country has lost a whooping USD394.60m-what he pegged to be an equivalent of MK239.27 billion.
He said the amount is suspected to have been illegally eternalized through transfer pricing by several multinational companies operating in Malawi.
Kabambe says transfer pricing refers "to the setting of price of goods and services sold between controlled or related legal entities within an enterprise."
Paladin Africa Limited, which runs the Kayerekela Uranium Mine in the lakeshore district of Karonga, is one of them.
Kabambe noted that most cases are where a subsidiary company sold goods to a parent company outside the country.
He said: "The cost of those goods paid by the parent to the subsidiary is the transfer price. Transfer pricing multi-nationally has tax advantages, but we, regulatory authorities, frown upon using transfer pricing for tax avoidance.
"In some cases, the transfer of goods and services from one country to another within an interrelated company transaction can allow a company to avoid tariffs on goods and services exchanged internationally."
He said transfer prices are supposed to be done "at arms lengths."
Said Kabambe: "It is therefore disheartening to report that some companies in Malawi are involved in transfer pricing for tax avoidance. Investigations and transfer pricing audits regularly carried out by the Malawi Revenue This is a large percentage of what Malawi has as its foreign exchange reserves."
According to him, as law enforcement agencies, they will ensure that everyone involved in the malpractice is brought to book as this is a great disfavor to the nation.
Kabambe said in the cities of Lilongwe, Blantyre, Zomba and Mzuzu and other areas of the country, there exist unlicensed persons who illegally openly sell foreign exchange to the general public.
"This market is also called 'forex black market'. This practice is unlawful and transactions pertaining to such practices are illegal, bold and unenforceable," he said.
According to the senior economist, there must be a big no to illegal foreign currency externalization, transfer pricing and money laundering.
"We believe the Memorandum of Understanding (MoU) we have just signed will go a long way in curbing these malpractices. We will also ensure that every dollar made from our exports is retained in this country. We will ensure that every remittance is in respect of payment for bonafide importation of goods and services or any other bonafide offshore payment. But more importantly, we will ensure that the law applies to everyone," he said.
Until 1994, the Exchange Control function [of foreign currency] was under the Reserve Bank.
But with reforms in the financial sector and liberalization of the economy driven by the IMF, the function was delegated to commercial banks.
It has been disaster for Malawi.