Malawi: Cama Accuses Edible Cooking Oil Manufacturers of Blackmailing Consumers and Government

27 September 2021

Consumers Association of Malawi (CAMA) describes as blackmail the continued attempt by refiners and producers of edible cooking oil in asking the government to remove the 16.5% value added tax (VAT), which government re-introduced last year.

In a statement issued on Monday, CAMA says it has constantly condemned the continued blackmailing by the Edible Cooking Oil manufacturers in the country, "who are seeking unnecessary attention and sympathy from consumers and government".

Earlier this year, the manufacturers attributed price increase of refined cooking oil to the reintroduction of VAT on the commodity -- a justification which CAMA, in collaboration with Malawi Revenue Authority (MRA), later disputed.

At a press conference held in April. CAMA executive director John Kapito had said according to their findings, the increase in the price of the commodity is due to many factors including increase in global prices of crude oil, and not VAT.

At the press conference, which was also attended by representative of the cooking oil manufacturers association, Kapito said CAMA had successfully championed for government to remove VAT from cooking oil in 2015, with the anticipation that prices should go down for the rural masses to afford the commodity, which is enhanced with Vitamin A.

"But within six month after VAT was removed in 2015, prices of the commodity still increased -- which showed that other factors played a hand since most of the manufacturers actually just import crude oil and just refine it," Kapito had said.

"The price increase should not be justified that it's coming from the VAT because if it was then it should have been at 1.6%. But here we see increase of 52% for Mulawe and 38% for Kukoma just for a 500 liter bottle."

In Monday's press statement, Kapito says the manufacturers have for a long time preferred to import crude oil materials from the Eastern countries such as Malaysia and India and "always at high prices than using local raw materials grown by our farmers".

Just as he indicated in April at the press conference, Kapito further says Malawian farmers grow a lot of soya, groundnuts and sunflower used in the production of edible cooking oils but throughout the years they have failed to find markets for their produce.

This, Kapito says, is because the local manufacturers opt to buy crude oil "from their own countries of origin".

"Throughout the past years, Malawi was producing its own cooking oils using its own local raw materials," he said. "We all recall Uniliver or Lever Brothers used to produce COVO and Kazinga with linkages to our local farmers.

"These were superior products produced locally and you may recall that the vernacular then for cooking oil was 'Mafuta a Mtedza' -- meaning it is cooking oil produced from groundnuts. 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 dominantly imported from other countries. It is, therefore, shocking that today the Malawi Government would allow an Association of Cooking Oil Refiners/Producers to import all their raw materials from their home countries and deny our local famers access to markets."

Kapito says the manufacturers are demanding a number of tax incentives from Government "from a product that has no added value to Malawians, especially farmers and consumers".

"CAMA has for a long time lobbied with Government to empower local Malawians linking them with local farmers to start producing local cooking oils. There is no magic science in the production of cooking oils that would require anybody coming from another planet.

"The Cooking Oil Refiners are ransoming Government and consumers as if no one else apart from them can produce cooking oils in Malawi.

Malawi has huge technical expertise supported by many graduates from our technical colleges and universities that can be empowered with resources to go into the production and create linkages with our farmers to start producing locally Malawian cooking oils."

He concludes by saying the importation of crude oil "is an abuse of scarce resources" and CAMA appeals to the Ministries of Trade and Industry not to give crude oil import licenses to the existing cooking oil manufacturers.

"We have also noted that both Ministries of Trade and Industry are some of the State captured institutions and are not in control of their mandates -- hence compromised," he said.

In their justification, the manufacturers had said they had to increase the price of the commodity because the global prices for crude oil they import went up and keeps fluctuating.

They said this was the same trend in the neighbouring countries such as Mozambique and Zambia, whose prices are also similar to that in Malawi but with the introduction of VAT it means the prices had to go further up.

In an exclusive interview in April, public relations manager for Capital Oil Refining Industries Limited (CORI), Violet Kapolo had given an example of Mozambique, which does not demand VAT on cooking oil and led unscrupulous to start smuggling the commodity and sell it in Malawi at lower prices than the local products.

She had said the smuggled oil comes in bulk packages of 20litre buckets which local manufacturers sell most.

Kapolo had said 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."

But CAMA and MRA stood their ground, saying smuggling has always existed and that "it has not increased because of VAT yet 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.

Both Kapito and Kapoloma also firmly attributed to price increase because globally crude oil prices have also increased and thus they too had to follow suit.

"Let's agree here that VAT has nothing to do with the price increase," Kapito said at the press conference. "There are many factors and that include the global trends on crude oil which you have told us here."

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

"This measure will now allow manufacturers to claim input VAT," he had said. "I wish to inform this august House that local manufacturers of refined cooking oil continue to benefit under the Industrial Rebate Scheme where raw materials are imported without payment of duty.

"In addition, under the Surcharge Tariff regime, the local manufacturers are protected from adverse competition. In this regard, arbitrary price increases especially by local manufacturers reflecting the full VAT adjustment on the refined cooking oil is not expected."

According to Senior sources in MRA, when manufacturers buy their raw materials to produce the cooking oil, they pay VAT -- "which is their input VAT and when they sell their products they charge VAT -- that is their output VAT.

"The input VAT and the output VAT can only be netted off if there is VAT on the product. In that regard since there is claiming of the input VAT it does not become a cost to the manufacturer.

"Prices should, therefore, not have been affected in any way. In fact, they should have gone down."

When asked that if the input VAT can be claimed, why then was it factored as a tax measure in the first place instead of just letting it as it was, our source contended that "as a tax measure, it needed a change in the substantive VAT law and Parliament had to come in".

AllAfrica publishes around 800 reports a day from more than 100 news organizations and over 500 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.

X