Withholding VAT System

Last Updated: 28 April, 2021 - Print

What is Withholding VAT?

The Malawi Revenue Authority (MRA) under its modernization drive introduced the Withholding Value Added Tax (VAT) regime with an aim of promoting VAT compliance and improve taxpayer service delivery.

The regime was gazetted into law in December, 2018.

This is one method of collecting Value Added Tax (VAT) where VAT levied on supply of goods and services by individuals and business entities would be withheld and remitted to MRA by appointed VAT agents.

Why was Withholding VAT introduced?

Withholding VAT was introduced to promote VAT compliance through;

• Increased VAT revenue collections
• Increased filing rates – the regime transforms non-filers and nil filers into active VAT operators
• Broaden the tax net by registering eligible individuals and businesses for various taxes
• Increase tax fairness issues – every taxable supplier pays their fair share of tax
• Create a steady flow of revenues to the Government

Who is mandated to Withhold VAT?

The Authority to identify and appoint Withholding VAT agents rests with MRA. The Authority has appointed Government Ministries, Departments and Agencies (MDAs) as agents to withhold and remit VAT.

Only appointed agents are mandated withhold VAT.

How Withholding VAT operates

The VAT is withheld at the point of payment by buyer (agent) and NOT at the point of raising a tax invoice by the supplier. The withheld VAT is at standard rate of 16.5%.

A supplier who makes taxable supplies in respect of which Value Added Tax is withheld by the withholding agent for Value Added Tax shall issue an invoice showing separately the amount of Value Added Tax chargeable.

 

Upon making payment to a supplier and deducting tax therefrom, a withholding agent for Value Added Tax shall furnish the supplier with a Withholding Value Added Tax Certificate in such form as the Commissioner General may direct.

 

The agent who has deducted from a payment to a supplier, an amount representing Value Added Tax Withheld   shall remit such amount to the Commissioner General, within twenty five days from the end of the month in which such deduction was made.

 

The withholding of Value Added Tax by a withholding agent for Value Added Tax shall not relieve a supplier of any obligation to file returns in accordance with the VAT Act. The Value Added Tax Withholding Certificates shall be completed during the month to which the remittance relates, together with a return, summarizing the particulars of all deductions of Value Added Tax Withheld made in that month.

 

To ensure efficiency and effectiveness of the Withholding VAT regime, the Authority has developed a Withholding VAT operating system that will interface MRA with appointed agents and suppliers. The interface will allow the agents and suppliers to log into the system using a portal on our website: www.mra.mw. Among other features, the system will enable the suppliers to view summaries of their VAT withheld and e-payments of the tax withheld. In other words, the system is aimed at promoting accountability and validation of the Withholding VAT transactions among the appointed agents and the suppliers.

Key features of the system include;

1.  Online registration as Withholding VAT agent
2.  Automatic issuance of Withholding VAT Registration Certificate
3. Email notifications for registration
4. Summary of withheld VAT by agent at any given period
5. Generation of electronic Withholding VAT Certificate
6. Summary Withholding VAT remittance by agent
7. Summary of Withholding certificates issued by agent
8. Reminder of Outstanding Withholding VAT Payment
9. Agent’s remittance compliance report
10. Automatic calculation of penalty for non- remittance by agent

Withholding VAT is not a tax but a method of collecting VAT and all those concerned are urged to comply with the new regulation in order to avoid penalties. Suppliers are, therefore, being reminded that a VAT invoice raised should not be VAT inclusive.