Value-added tax (VAT)
VAT is applicable on taxable goods and services. There are three classes of supplies for VAT: taxable supplies (at the rate of 16.5%), zero-rated supplies, and exempt supplies.
A taxable person can claim input VAT on inputs used in making taxable supplies.
A taxable person should complete VAT returns and make VAT payment, where applicable, on a monthly basis within 25 days after the end of the month.
The Commissioner General may appoint a VAT agent irrespective of whether the appointee is eligible for VAT registration. The agent is responsible for withholding the VAT, issuing a VAT withholding certificate, and remitting the amount to the tax authority.
Zero-rated supplies include exercise books, fertilisers, motor vehicles for the transport of goods, and salt.
The following supplies are tax exempt: machinery and financial services.
Further, there is an exemption of VAT on the following:
- Imported goods on water supply.
- Solar equipment and goods.
- Liquified petroleum gas.
Customs duty is applicable on goods imported into Malawi. The basis for calculating duty is cost, insurance, and freight (CIF). There are three types of import duties: customs duty, import excise, and import VAT. The rate of custom duty varies from product to product.
The following are the customs and excise measures that are effective in Malawi:
- Returning residents will have to clear, duty free, a motor vehicle owned for more than 12 months under CPC 430.
- Duty free on importation of diagnostic and laboratory reagent under CPC 405 by Health Institutions.
- Removal of duty on imported electronic fiscal devices.
- Removal of taxes applicable on large buses with seating capacity of more than 45 passengers (including the driver).
- Reintroduction of the Industrial Rebate System. This is a major relief to the manufacturing sector; however, given the abuse of the scheme in the past and the Minister’s intimation, it will be subject to serious monitoring by the Malawi Revenue Authority (MRA). Taxpayers will be required to register with the MRA.
- Other measures are in alignment with the Common Market for Eastern and South Africa (COMESA) and South African Development Community (SADC) tariff structures.
Domestic excise is chargeable on certain goods manufactured in Malawi and on certain services, such as alcoholic drinks, tobacco, and cell phone airtime. The rate of excise varies depending on the goods and services.
Buyers of tobacco must pay a levy of 0.2% for every kilogram of tobacco bought.
There are no property taxes in Malawi.
There are no transfer taxes in Malawi.
Stamp duties apply on certain documentation.
Presumptive tax on turnover
Effective 13 August 2021, turnover tax has been replaced by a presumptive tax on turnover for small businesses with turnover of less than 12.5 million Malawian kwachas (MWK).
The presumptive tax on turnover shall not apply to the following:
- Rental income and professional management fees.
- Income in corporate companies.
- Any income that is subject to final WHT.
The presumptive tax on turnover for each year of assessment shall be payable quarterly at the rates below and is payable on the 20th day of the following month after the end of each quarter.
|Income not exceeding 4 million
|Income above 4 million but not exceeding 7 million
|Income above 7 million but not exceeding 10 million
|Income above 10 million but not exceeding 12.5 million
Resource rent tax (RRT) for miners
Miners pay RRT of 15% on after-tax profits, determined by using a prescribed formula. The prescribed formula is:
r = (40.5 - t) / (100 - t) x 100
- r is the rate of RRT expressed as a percentage, and
- t is the rate applicable for income tax on companies.
Under pay-as-you-earn (PAYE) regulations, the employer is required to withhold tax from employees’ salaries and remit to the tax authority on their behalf. There are penalties for non-compliance with the regulatory requirements.
Social security contributions
Under the National Pension Scheme (NPS), an employee contributes a minimum of 5% of the pensionable emoluments while the employer contributes at least 10% of the employee's pensionable emoluments. Contributions by the employer are tax deductible up to a maximum of 15% of the employee's pensionable emoluments while those made by the employee are not.
Fringe benefits tax (FBT)
A fringe benefit is defined as any asset, service, or other benefit in kind provided by or on behalf of an employer to an employee if such benefit includes an element of personal benefit to the employee. The employer providing such benefits is liable for payment of FBT. FBT is charged at the rate of 30% of the taxable figure.
Take note that a benefit need not be wholly for personal use in order to be considered for FBT.
Note as well that no benefit in cash, no matter what it is termed as, can be treated as a fringe benefit. All monies paid in cash (rather than in kind) should be considered for PAYE deduction.
However, subsistence allowances, given to employees working out of their duty station for instance, presumably to cater wholly, exclusively, and necessarily for their needs, such as accommodation, meals, transport, etc., ought not be taxed. This applies also for reimbursement of expenses incurred in business.
Every employer shall register for FBT within the month in which one begins to provide fringe benefits.
The sums due as FBT shall be remitted to the MRA in quarterly instalments not later than 14 days after the end of each quarter of a period of 12 months ending 30 June, and remittance should be accompanied with a duly completed FBT return in Form FBT 2.
Note that the value for FBT should not be included in the employee's certificate of gross emoluments.
Assessment of housing fringe benefits
The taxable value of a housing fringe benefit is the greatest of (i) 10% of salary where the house is unfurnished, (ii) 12% of salary if furnished, or (iii) the rental value.
Where the house occupied by the employee is owned by the employer, the taxable value is reduced by 50%.
FBT is applicable on motor vehicles allocated for use by members of staff and does not include pool cars or cars that are strictly commercial in nature.
The taxable value is 15% of the original cost of the vehicle.
School fees (for children/dependants)
50% of the cost to the employer for school fees is a taxable benefit, where payment is made directly to the educational institution. Education allowances payable to employees are not subject to FBT as the allowance is considered part of normal salary and taxable as such.
Utilities, household items, vacations, travel, and domestic services
The taxable value of utilities (e.g. electricity, water, and telephone expenses), household items, vacations, travel, and domestic services (e.g. gardener, cook, house boy, guard, nanny) is the entire cost to the employer. Except that for a house owned by the employer, the cost of a gardener, security guard, and watchman shall not constitute a taxable benefit.
Interest-free loans and loans given at interest lower than the commercial rate
Where an employer gives a loan to an employee that is interest-free or bears interest that is lower than the predetermined commercial rate, the difference between the interest offered and the commercial rate is a taxable benefit.