Malawi: Vat Contributes to Cooking Oil Smuggling

Cooking oil manufacturers takes cognizance that the increase in price of the commodity is due to global trends on crude oil but Malawi's prices went further up following the re-introduction of 16.5% valued added tax (VAT).

In an exclusive interview, public relations manager for Capital Oil Refining Industries Limited (CORI), Violet Kapolo unpacks their greatest concern in the whole saga involving cooking oil price increase in relation to the re-introduction of VAT by the government.

As a recap, the manufacturers expressed their concerns that they had to increase the price of the commodity when the global prices for the crude oil they import went up and keeps fluctuating.

This is the same trend in the neighbouring countries such as Mozambique and Zambia, whose prices are the same as with that in Malawi but -- contends Kapolo -- with the introduction of VAT it means the prices had to go further up.

"Mozambique, for example, does not demand VAT on cooking oil and when traders learnt of lower prices there as opposed to ours, they started smuggling in the oil from Beira," she said.

"We are not talking of the bottle-packaged products here, sold through retailers such as Sana or Shoprite, Chipiku, People's and other grocery shops -- we are talking of the bulk selling in 20litre buckets.

"This is where we sell most -- in bulk of 20litre buckets. Before VAT was re-introduced traders weren't bringing in smuggled oil because the prices were the same with that of Mozambique, so it didn't make business sense to import.

"But when we had to factor in VAT, it gave leeway for smugglers to make huge profits from the imported cooking oil and thus consumers opted to buy the smuggled product."

She disclosed that CORI was producing the commodity enmasse and they could sell up to 5,000 buckets a day but now they are selling less than 500 a day.

"We worked in shifts in order to meet the huge demand but now, the machines are idle, the staff are idle, which might lead to job losses but we are reluctant to execute for the moment hoping the authorities would protect us from the smuggling trade that is killing us.

"For that to happen, the government needs to revisit the VAT system because this is what has affected our industry. There is need to enforce this smuggling," Kapolo said.

At a press conference held in Blantyre last week, Consumer Association of Malawi (CAMA), in collaboration with Malawi Revenue Authority (MRA), disputed the manufacturers claims that the current price increase was due to the 16.5% VAT.

Both stood their ground, saying smuggling has always been there and that it has not increased because of VAT but evidence of the illegal trade is awash on social media with pictures of traders offloading their cargo at Tsangano in Ntcheu and other entry points.

At the press conference, representative of the manufacturers, Mrs. Patel of CORI, maintained that cooking oil smuggling from neighbouring countries is indeed affecting their business and asked the authorities to take strong measures along the neighbouring borders.

But MRA Head of Corporate Affairs, Steven Kapoloma disputed this, saying their fight against smuggling of any commodity is their priority and that they have dedicated patrol units that are plying along the borders of Mozambique operating from Muloza in Mulanje.

Kapoloma said since they intensified the patrols, they have intercepted lots of smugglers and confiscated many tonnes of cooking oil -- a confession of sort that indeed the commodity is being smuggled in.

Meanwhile, Kapolo said in order to control some high costs from importation of crude oil from Beira through transportation using haulage companies, CORI bought 30 tankers but they have been rendered idle because business is down.

"We bought new machines just for the bulk processing and packaging; we built a bigger warehouse for these machines and storage; we built better loading areas -- all this was going to create more jobs.

"We have spent millions on these new projects but today, they are idle because people now prefer to buy cheaper smuggled cooking of which the government is not benefitting in terms of revenue collection."

She gave an example that CORI collected over K500 million from VAT which they paid to government less the VAT they are also supposed to pay to MRA on other materials they use for packaging such as bottles, cartons, buckets and other costs.

On a tour of the CORI factory at Chirimba Industrial Area, this reporter witnessed all these projects taking place such as construction works in progress and staff members just loafing around as well as idle trucks and tankers.

"It's so frustrating for the staff just to come to work and not be able to perform their duties and in their minds are fears for their jobs," Kapolo said.

At the press conference, Kapito made a presentation of the prices on three brands of cooking oil as of February since the VAT was effected that showed a 38% increase for a 5 litre bottle that was at K5,400 before VAT but it was adjusted to K7,438.

A 2ltr bottle went up from K2,100 to K2,999 (representing an increase of 43%); 1ltr from K950 to K1,550 (63%) and 500mls from K520 to K790 (52%).

For Kukoma, produced by CORI, a 5ltr bottle increased from K5,700 to K7,735 (36%); 2ltr bottle from K2,400 to K3,135 (11%) and 1ltr from K1,500 to K1,627 (8%) and 500mls from K620 to K858 (38%).

Sungold 5ltr bottle increased from K6,200 to K6,999 (13%); 2ltr bottle from K2,700 to K2,999 (31%) and 1ltr from K1,450 to K1,500 (3%).

As of Wednesday, the price in supermarkets of 5ltr bottle of South African product, Sunfoil is now selling at M12,995 from MK10,500.

The difference in price in the same packaging of 5ltr bottle of Sunfoil to CORI's Kukoma product is K5,260 and for Sungold is K5,996.

Global crude palm oil that CORI imports was US$805 in June 2020 but as of this week, it is at US$1,225.

At the press conference, while the manufacturers maintained their stance that VAT has contributed to the price increase of cooking oil, both Kapito and Kapoloma also attributed that the increase in global price has played a huge part.

In his 2021 National Budget presentation in Parliament last September, Finance Minister Felix Mlusu had said cooking oil manufacturers need not raise prices of their commodities since tax measures will enable them to claim input VAT when one purchases goods or services liable to VAT.

But when the manufacturers still increased the prices, they lobbied to the Finance Minister through a letter dated September 14 to review or withdraw the VAT as it might trigger serious negative multiplier effects in the economy.

Edible Cooking Oil Association of Malawi, a grouping of five manufacturers, also argued that if the price of the products was to be incrased, it will allow room for massive smuggling of the product from neighboring Mozambique, Zambia and Zimbabwe where there is no VAT applied on it.

Initially, CAMA had joined the condemnation of the tax measure believing it was indeed through the re-introduction of VAT until now when the consumer watchdog did its own analysis -- in which it agreed with the Finance Minister.

In his Budget presentation in Parliament, Minister Mlusu had said the introduction of the standard rate of 16.5% VAT on refined cooking oil was to ensure efficiency in the VAT system -- taking cognizance that previously the commodity was VAT exempt and manufacturers were not able to claim tax refunds on their input VAT.

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