Value Added Tax (VAT) is a tax on consumption expenditure that is levied on the “value added” that has been created at various stages in the production and distribution chain. The standard rate for VAT in Malawi is 16.5 percent except those listed on the 1st Schedule and the 2nd schedule to the Taxation Act. The 1st Schedule lists Exempt Supplies which do not attract VAT while the 2nd Schedule lists Zero-rated Supplies where VAT is charged at zero percent.
“Value added” is the difference between the business’ purchases of inputs and sales of output. Assuming that a business produces a carton of soap sold for MK20, 000 from various inputs bought at MK15, 000, the value added would be MK5, 000. Therefore, VAT would be charged on the MK5, 000 at a standard rate of 16.5 percent.
Any person who makes taxable supplies of goods or services and whose business turnover is estimated or exceeds K25 million per year is obliged to register for VAT. Registration for VAT can be done at any Malawi Revenue Authority (MRA) Domestic Taxes office. When one is registered for VAT, he or she would be given a registration certificate which must be displayed or exhibited permanently at the principal place of business. Any businessperson who qualifies as a taxable person or has grounds to believe that he or she will qualify as a taxable person is liable to apply for registration to MRA. The person must apply to MRA for registration within 30 days of becoming liable or qualified to register for VAT.
VAT is collected by registered businesses that act as agents of the Malawi Government at all points in the chain of production and distribution. These include manufacturers, wholesalers, retailers and service providers. When a registered operator supplies taxable goods or services, VAT should be charged and a tax invoice should be issued which shows the VAT which has been paid.
VAT is also charged on imported services. The person or organization importing the service is mandated to account for the VAT and remit it to MRA. A registered person who makes taxable supplies must charge VAT and remit to MRA by the 25th day of the month immediately following the month to which the tax relates.