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New tax measures announced

New tax measures announced

The Malawi Government has announced new tax measures for the 2023/24 Fiscal Year covering Customs & Excise, Excise Tax, Income Tax and Valued Added Tax (VAT).

Customs & Excise New Tax Measures became effective midnight 2nd March 2023 while new tax measures for Income Tax and VAT will become effective once the relevant bills have been passed in Parliament, assented to by the President and gazetted.

The following are the new tax measures;

A. CUSTOMS & EXCISE MEASURES

· Removal of taxes on importation of electric motor vehicles and electric motor vehicle charging systems

· Importation of two motor vehicles every five years by a religious organization if it has at least five health facilities or five education institutions

· Revision of Travelers’ Rebate on personal non-commercial accompanied baggage MK300,000 to K750,000

· Revision of Rebate for personal non-commercial unaccompanied baggage from MK50,000 to MK100,000

· Revision of warehouse rent for importers who keep their goods with MRA warehouses from MK500 per tonne or cubic meter per month to MK1,000 per tonne or cubic meter per day.

· Extension of the duty-free disposal of motor vehicles after 5 years, currently being provided only to Members of Parliament, to other individual beneficiaries with similar privileges such as Judges, diplomats, senior government officers and returning residents

· Removal of import duties on gas appliances such as cookers and hotplates

· Adoption of the use of specific taxes for second hand motor vehicles

· Introduction of electronic tax stamps on still water, lotion and glycerine

· Amendment of Customs Procedure Codes (CPCs) 419, 420 and 496 to clarify that motor vehicles that are eligible for duty-free importation under these CPCs are those that are principally designed for the transportation of persons, except buses

· Removal of import duties and Value Added Tax on urinary drainage bags

· Restriction of the duty-free importation of consumables such as cutlery and bed linens imported under CPC 442 for tourism industry to be enjoyed only during the initial investment period

· Amendment of the Customs & Excise Act to provide for administrative hearing processes under the Industrial Rebate Scheme before the Commissioner general decides on their industrial rebate status

· Exportation of all non-traditional agricultural produce to be exported from a customs-controlled export warehouse as designated by the Commissioner General

· Remove of the Tax Stamps Schedule from the Customs & Excise Act and place it in the Regulations and introduce duty rates on some products

 

B. EXCISE TAX MEASURES

· Introduction of a 5% excise tax on roofing tiles coated with acrylic paint

 

C. INCOME TAX MEASURES

· Introduction of a tax holiday of up to 10 years and duty-free importation of various items including machinery and building materials for investors in mega farms

· Amendments to the Priority Industry Scheme to include the following;

i. Allowing investors who registered before 2013 to qualify for incentives under Priority Industry Scheme provided that the investor is operating the new investment as a subsidiary;

ii. Requiring all companies operating in priority industry to have at least 30% local employees in management positions;

iii. Allowing joint ventures of Malawians and non-Malawians to be treated as Malawian investment if the Malawian investors are contributing at least 51% capital investment

iv. Include assessment criteria for qualification to operate in the priority industry in the regulations to increase the transparency of the assessment process

v. Including a sunset clause for each sector so that the current sectors of agro-processing, energy generation and distribution, and mega farms will be the designated sectors in the priority industry for the next 10 years from 2023 to 2033

vi. Including the tax holiday period for each investment in the regulation

· Removal of the 40% income bracket in the Pay As You Earn (PAYE)

· Replacement of 3% withholding tax on farm produce sold by farmer’s clubs with a 1% final tax

· Introduction of the following measures to mitigate against illegitimate tax refund claims;

i. Introduction of 10% Advance Income Tax on all exports for exporters not registered for tax or without Tax Clearance Certificate (TCC)

ii. Request for proof of receipt of export proceeds from the banks before processing Value Added Tax refunds for exports

· Implementation of the following measures to increase tax compliance;

a) Increasing the withholding tax rate for contractors and sub-contractors in the building and constructing industries from 4 percent to 10 percent;

b) Increasing the Advance Income Tax on imports from 3 percent to 10 percent;

c) Introducing 10 percent Withholding Tax on income from quarrying; and

d) Requirement for a Tax Clearance Certificate on procurement of explosives from the Malawi Police Service and when purchasing ethanol.

· Amendment of the Taxation Act as follows;

1. Addition of the definition of “Place of Effective Management” and the definition of “Deemed Income” in Section 2

2. Clarification on the deductibility of expenses relating to exempt income, investment income, and a mixture of exempt income and investment income such as dividend income expenses in Section 28

3. Addition of “Place of Effective Management of Business” in Section 76A

4. Allowing companies that receive rental income from the movable property business to obtain withholding tax exemption certificate when they qualify in Section 102A

5. Inclusion of a penalty for failure to submit requested records during an audit and to specify the period required to submit the requested information in Section 112

6. Amendment of the Regulations on Fringe Benefits Tax and Pay As You Earn to include a penalty for failure to submit Returns.

7. Re-introduce the definitions of “Debt and Equity”

8. Remove the reference to Section 65 in the definitions of Pension Fund and Provident Fund

 

D. VALUE ADDED TAX MEASURES

· Exemption of wheat flour from VAT

· Introduction of a standard rate of VAT on the following products; exercise books with hard covers; rye flour; other cereal flour; groats and meal of wheat, groats and meal of other cereals; rolled or flaked grains of oats or other cereals; other worked grains of oats or other cereal; cereal, germ, whole rolled flaked or ground; roasted malt; and malt roasted of barley, oats, rye, sorghum or mullets

 

BY WADZA OTOMANI

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