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Single excise rate for cigarettes re-introduced

Single excise rate for cigarettes re-introduced

The Malawi Government has re-introduced a single excise rate of US$15 per 1000 sticks of cigarettes or its Malawi Kwacha equivalent for both imported and locally produced cigarettes. This new tax measure came into effect on the midnight of 19th May, 2017 following the amendment of the Customs and Excise (Tariffs) Order.

Since 2014, Malawi had been using a two-tier structure, one for imported cigarettes and the other for locally produced cigarettes. Under the first tier, locally produced cigarettes were levied US$10 per 1000 sticks or US$10 per 1000 sticks of cigarettes for imported cigarettes with 70 percent locally grown tobacco content. On the other hand, the second tier targeted all other cigarettes outside the first tier and the applicable excise tax rate was equivalent of US$20 per 1000 sticks of cigarettes.
 
The Malawi Government has decided to harmonize the excise tax rate on all cigarettes for mainly two reasons.

Firstly, some importers had been falsifying country of origin documents in order to pay a lower tax rate of US$10 per 1000 sticks of cigarettes in the first tier instead of US$20 per 1000 sticks of cigarettes as stipulated in the second tier.  The harmonization of the excise tax rate would therefore reduce the incentive to falsify country of origin documents in order to pay a lower tax rate.

Secondly, it had been challenging for the Malawi Revenue Authority (MRA) to determine if imported sticks of cigarettes had 70 percent locally grown tobacco content. The harmonization of the excise tax rate at US$15 per 1000 sticks of cigarettes for both imported and locally produced sticks of cigarette would therefore ease tax administration on the part on MRA.

Malawi had been using a single excise rate for both imported and locally produced cigarettes until 2014 when the Malawi Government reverted to a two-tier structure after a noticeable increase by investors to manufacture cigarettes in Malawi using locally grown tobacco.

The two-tier structure provided a lower tax excise rate for locally produced cigarettes and a higher rate for imported cigarettes. The objective of the two-tier structure was to support and encourage local production of cigarettes with its attendant advantages of value addition, job creation, export diversification and foreign exchange earnings. 

The re-introduction of the single excise rate for imported and locally produced cigarettes is therefore expected to increase tax revenues and reduce smuggling of cigarettes into Malawi.  MRA would like to appeal to importers and manufacturers of cigarettes to take note of the amendments and comply accordingly. 

Feedback: tax@mra.mw, 0888 958 220, 0999 551 634

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