Indirect tax snapshot
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Value Added Tax (VAT) is the main type of indirect taxation in Malawi
It is a tax on consumption which is applied during the production and distribution process to most goods and services. It is also applied to goods, and certain services, entering the country. Although VAT is ultimately borne by the consumer by being included in the price paid, the responsibility for charging, collecting and paying it to the tax authority at each stage of the process rests with the business making the supply in the value chain i.e manufacturers, wholesalers, retailers and service providers.
A business registered for the tax will charge VAT (output tax) on its sales, and incur VAT (input tax) on its purchases (including any VAT paid at importation). The difference between the output tax and the deductible input tax in each accounting period will be the amount of VAT payable by the business to Malawi Revenue Authority. Where the input tax exceeds the output tax, a refund can be claimed after every three months
A transaction is within the scope of Malawi VAT if the following conditions are met:
(a) it is a supply of goods and services made in Malawi.
(b) it is an importation of goods and services, other than exempt goods and services
(c) supply of goods and services where the supply is taxable supply and made by a taxable person during his or her business.
There are three rates of VAT that are applied to goods and services in Malawi; the standard rate, the zero rate and exemption on certain goods and services.
Businesses that make exempt supplies are unable to claim all of the input tax that they incur, so the VAT paid to suppliers will be a 'real' cost.
Most goods imported into Malawi from outside are subject to VAT. The tax will have to be paid by the importer at the time of importation. Where the importation is for business purposes and the importer is registered for VAT, it is possible to reclaim the tax (subject to certain rules).
It is also important to note the interaction between VAT and Customs duty. Customs duty is levied across the Malawi at the place where goods are imported into the country It is levied in order to bring the cost of goods produced outside Malawi up to the same level as those produced within it. Once duty (and VAT) has been paid by the importer, the goods are in 'free circulation' and they can then be released for use in the home market. Unlike other indirect taxes, such as Excise, once duty has been paid it is not usually recoverable by the importer. It therefore represents a bottom line cost to the importing business if it cannot be passed on in higher prices. It is therefore very important to ensure that the correct rate of duty is applied. VAT is charged on the value of the importation, including any custom duty.
A 'person' who either makes or intends to make taxable supplies of goods or services in the course or furtherance of a business must register for VAT if the value of its taxable supplies in Malawi exceeds the annual registration limit of MK25,000,000.00, or is expected to exceed the limit in the near future. A business can also register on a voluntary basis even if the registration limit has not been exceeded.
For these purposes, a 'person' includes any legal entity. Therefore, once a person is registered for VAT, all of his business activities will be covered by the registration - even if the nature of some of those activities are very different.
Two or more corporate bodies can be registered together as a VAT group if:
(a) All companies are incorporated in Malawi
(b) one of them controls each of the others.
(c) one person, whether a company or an individual, controls them all: or
(d) two or more individuals carrying on a business in partnership control them all.
A corporate body cannot be treated as a member of more than one VAT group at a time.
The main advantage of VAT group registration is that, apart from a few limited exceptions, any supply of goods or services by a member of the group to another member of the group is disregarded for VAT purposes. This reduces the risk of VAT being accidentally omitted on supplies between separately registered connected companies.
However, there are some disadvantages and any decision on whether to group register should be taken with care. For example, all VAT group members (including former members) are jointly and severally liable for the VAT debt of the group during the period of their membership.
A penalty may be imposed by the tax authority if a business fails to register at the correct time.
The normal VAT registration limit does not apply to businesses who are not established in Malawi, but for the purposes of the tax are making taxable supplies there. Those businesses will need to register for VAT as soon as they commence trading in the Malawi when they reach the expected level of turnover.
All transactions are covered under the VAT Act and there is no any specific legislation to tax non resident supplies of electronically supplied/digital services.
The VAT Act has a provision that requires a non-established business to appoint an agent to act on its behalf in Malawi for VAT purposes where the person:
a) is a taxable person or makes taxable supplies or acquires goods in Malawi
b) is not established, and does not have a 'fixed establishment' in Malawi
c) in the case of an individual, he does not have his 'usual place of residence' in Malawi.
VAT returns are submitted monthly from the end of each month as an accounting period. A business with seasonal income can make a special request to the Commissioner General to file returns when they are in season.
All VAT returns must be submitted within 25 days from the end of the relevant accounting period, together with any tax due.
A default surcharge penalty is imposed by the Malawi Revenue Authority if VAT returns are not submitted on time, or the related tax is not paid by the due date.
For the first late submission or payment, the tax authority will issue a notification to the taxpayer confirming that a penalty would be imposed in the future. In Malawi if a return is filed late, a penalty of MK300,000.00 for companies and MK75,000.00 for individuals is imposed and a further penalty of MK50,000.00 for companies and MK10,000.00 for individuals for each month or part thereof the return remains unfiled. Late remittance of tax attracts an outright penalty of 20% of the tax due if not remitted by the due date and a further penalty of prevailing Central Bank lending rate currently at 12% plus additional 5% per annum on the tax due for any month or part thereof the tax remains due.
Any other declarations only relate to those who are importing services. Other entities like the banks and not for profit organizations are not registered for VAT and upon importation of any service, they need to make special declarations and pay the VAT that is due as reverse VAT.
Yes. A range of penalties can be imposed where businesses do not comply with the VAT rules.
Penalties and interest can be applied for errors and omissions made on tax returns, or where the tax is paid late. Penalties can also be applied where the business has failed to maintain adequate records, provide information (including additional declarations), or makes repeated mistakes.
Criminal proceedings may be brought in the case of more serious matters as provided for under the VAT Act.
No. The reason is that Malawi does not have a fully fledged refund system the way things are in South Africa and other countries in the SADC region.
A VAT invoice must show:
• an invoice number which is unique and sequential
• the seller's name and address
• the seller's VAT registration number
• the invoice date
• the time of supply (also known as tax point) if this is different from the invoice date
• the customer's name and address
• a description sufficient to identify the goods or services supplied to the customer
• the rate of any cash discount
• the total amount of VAT charged expressed in sterling
• the invoice is supported by an ETR receipt, fiscal electronic signature or a letter from Malawi Revenue Authority that the supplier is unable to issue an ETR or fiscal electronic generated receipt.
For each different type of item listed on the invoice, the following must be shown:
• the unit price or rate, excluding VAT
• the quantity of goods or the extent of the services
• the rate of VAT that applies to what's being sold
• the total amount payable, excluding VAT
Where a VAT invoice includes zero-rated or exempt goods or services, it must:
• show clearly that there is no VAT payable on those goods or services
• show the total of those values separately
Where a business makes retail sales and makes a sale of goods or services for MK12,000,000.00 or less including VAT, are required to register for turnover tax and pay 2% of the total turnover.
VAT invoices can be issued, received and stored in electronic format. The same information is transmitted to Malawi Revenue Authority as the electronic fiscal tax registers are connected to the authority’s servers. Electronic invoices must contain the same information as paper invoices. The method used to ensure the authenticity of origin, the integrity of content and legibility of the invoices is a business choice and can be achieved by any business controls which create a reliable audit trail between an invoice and a supply of goods or services.
Yes. The implementation of the electronic fiscal devices such as the ETR, and EFDs has ensured real-time VAT reporting as transmission of information to the Malawi Revenue Authority is instant.
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