Turnover Tax (TOT) is tax levied on gross income from businesses. “Income from business” includes gross receipts, gross earnings, revenues, takings, yields and proceeds. In Malawi, it is covered under section 91A of the Taxation Act. TOT is applicable on all categories of income except rental income, management fees, professional fees or training fees, income of incorporated companies and any income that is subject to a final Withholding Tax.
TOT is levied at 2 percent of the gross receipts of businesses. All business entrepreneurs whose annual turnover does not exceed K6 million are supposed to register for turnover tax at the nearest Malawi Revenue Authority (MRA) Domestic Taxes Division Office. Upon registration, taxpayers are issued with a registration certificate. However, registration for TOT is optional. Taxpayers whose turnover falls within the K6 million bracket may choose not to register for TOT.
Taxpayers who are eligible for TOT but choose not to register for it must apply to the Commissioner General for exemption. Upon approval, such taxpayers are assessed under the normal income tax system which requires submission annual returns and accounts. When the income of a business registered under TOT exceeds K6 million in any year of assessment, the taxpayer should notify the Commissioner General of the change in status within one month.
When satisfied, the Commissioner General may approve the change of status which becomes effective from the first day of the month following the month during which the turnover exceeded MK6 million. When approved, such businesses follow the formal tax system of preparing tax returns and accounts.
Taxpayers under TOT system are required to systematically maintain records of their daily sales, both cash and credit. These records shall be inspected by MRA officers upon notification to verify that the correct tax is being paid. It is an offence not to maintain these records.
The TOT return should be submitted to MRA on or before 20th day of the month following the end of the tax period. For example, a return for the month of May 2014 should be submitted to MRA on or before 20th June 2014. Failure to submit a return attracts a penalty of K5 000 per return not submitted plus K250 each day the return is delayed.
Taxpayers who fail to pay TOT due or part thereof shall be liable to pay an additional 20 percent of the amount of tax which he or she shall have failed to pay in the first month plus an additional 5 percent per any additional month or part thereof for the period during which the tax remains unpaid.