APPLICATION OF VAT IN FINANCIAL SECTOR IN MALAWI

Introduction Malawi Revenue Authority was formed by an Act of Parliament enacted in 1998. It started operations in 2000. It is headed by the Commissioner General. The Authority has two core Divisions namely Domestic Taxes and Customs and Excise and each Division is headed by the Commissioner. VAT is therefore under the Commissioner of Domestic Taxes As part of tax administration reforms, the MRA established a Large Taxpayers Office (LTO) in 2007. LTO is responsible for administration of VAT in the financial sector in Malawi which comprises of banks, insurance companies, lending institutions and discount houses. There are over 50 financial Institutions falling under LTO.

Regulatory Framework Financial institutions in Malawi are regulated by the Reserve Bank of Malawi through various Acts such as the Foreign Exchange Act, the Insurance Act, and the Money Laundering Act among other Acts.

VAT Applicable to Financial Institutions VAT at 16.5 % applies to Financial Institutions although it is not applicable to standard banking services such as depositing and cashing of money. VAT is not charged on banking services such as deposits and withdrawals although it was introduced in 2012 but repealed in 2013. VAT is charged on imported services where the recipient of the service is responsible for payment of VAT. Other Taxable Income From Financial Institution

VAT Challenges in Financial Sector Transactions in Financial institutions are usually complex as other terminologies are difficult to understand MRA lacks computer aided auditing tools and techniques Difficulties in accessing information in the sector Analysis of Revenue Streams e.g. money transfer and other disbursements pose challenges

Challenges cont’d… Financial institutions engage in transfer pricing on equipment, intangible assets and services that are usually difficult to detect Financial institutions tailor imported services that attract management fees and service charges in a concealed manner

Way Forward Interfacing of Reserve Bank of Malawi (RBM) and ASYCUDA Perform an audit/walk through of selected transactions Perform benchmarking and consider third party evidence where necessary especially for transfer pricing Capacity building through recruitment and training for auditors with special skills IT Infrastructure upgrade Future projects Interfacing of Reserve Bank of Malawi (RBM) and ASYCUDA Introduction of contract service

Conclusion This has been a presentation on application of VAT in the Financial Sector.

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