1. ENHANCEMENT OF VAT COMPLIANCE MANAGEMENT IN MALAWI
By Use of Electronic Fiscal Devices

2. Content Introduction Brief Background to VAT in Malawi
VAT enhancement measures
Electronic Fiscal Devices (EFDs)
Problems Relating to VAT Prior to EFDs
EFDs Statistics in Malawi
Taxpayer Acquisition Status
Challenges relating to EFDs
Way Forward in Mitigating the Challenges
Penalties
Conclusion

3. Introduction
The republic of Malawi is a landlocked country in southeast Africa bordered by Zambia to the northwest Tanzania to the northeast and Mozambique on the east, south and west. Malawi is over 118,000 square km making it one of the smallest countries in Africa. It has an estimated population of 17.7 million. Lilongwe is the capital which is also Malawi’s largest city. The second largest is Blantyre and the third is Mzuzu. The name Malawi comes from the Malavi, an old name of the Nyanja people that inhabit the area. The country is also nicknamed "The Warm Heart of Africa

5. VAT Administration in Malawi
VAT is administered by the Malawi Revenue Authority (MRA). MRA was established by Act of Parliament enacted in It started operations in MRA is a quasi government institution which acts as an agent of the Malawi Government in tax administration.

6. Brief Background to VAT in Malawi
Malawi introduced a sales tax, surtax, in 1970 at 5% on sales price of domestic manufactures and the duty value of imports. The rate of surtax was increased to 10% in 1971 and 15% in Malawi introduced VAT in 2002 at 20%. Then it was revised to 17.5%. The rate currently stands at 16.5%

7. VAT Enhancement Measures
One of the measures adopted by the Government of Malawi to enhance VAT Compliance Management is the introduction of Electronic Fiscal Devices (EFDs).
EFDs which are used by VAT registered taxpayers aim at increasing the contribution of VAT revenues to domestic revenues.

8. Electronic Fiscal Devices (EFDs)
This term can be use to describe a wide variety of technological devices that revenue administrations can use to help monitor business transactions
There are three types of EFDs:
1. Electronic Tax Registers (ETRs)
Theses are used by retail businesses that issue receipts manually.
2. Electronic Fiscal Printers (EFPs)
These are used by businesses with point of sale systems
3. Electronic Signature Devices (ESDs)
These are used in computerized environments.

9. Electronic Tax Registers (ETRs)
These are appropriate and commonly used by retail business that issue receipts manually.
Examples of ETR

10. Electronic Fiscal Printers (EFPs)
Commonly used by computerized retail outlets. It is normally connected to the computer network and store every transaction in its memory. Suitable for supermarkets.
Examples of EFP

11. Electronic Signature Devices (ESDs)
Electronic Signature Device (ESD) used in conjunction with the PC system of a business that is running the accounting software that issue letter-headed (pre-printed) financial document such as invoices.

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13. Problems Relating to VAT Prior to EFDs
Over declaration of purchases by traders;
Non-issuance of tax invoices / receipts;
Maintenance of multiple set of books (parallel records).
Issuance of ‘fake’ receipts
Associated / related businesses & branches
Claiming of Non – deductibles
Lack of &/or incomplete tax records

14. EFDs Statistics in Malawi
Electronic fiscal devices type
Estimated target
Total Acquired (May 2016)
Acquisition Rate
Electronic Tax Registers (ETRs)
12000
7119
59.3
Electronic Fiscal printers (EFPs)
1500
1239
82.6
Electronic signature devices (ESDs)
1109
73.9
Overall
15000
9467
63.1

15. Taxpayer Acquisition Status
Estimated taxpayers target
Total acquisition to May end
Variance
Acquisition Rate (%)
7,500
4,570
2,930
60.9%

16. Challenges Relating to EFDs
Main Challenge
Voluntary Acquisition of EFDs. Some registered VAT operators have still not acquired EFDs
Other challenges
Some users not issuing fiscal receipts
Misclassification of taxable supplies shown as exempts
Undercharging on fiscal receipts the value
Change in business trading hours i.e. trading before and after the normal working hours to avoid issuing of fiscal receipts.
Delivering goods without fiscal receipts
Using of old receipts on new transactions
Obstruction of officers on duty by taxpayers
Change/ closure of businesses without informing MRA

17. Way Forward in Mitigating the Challenges
Frequent spot checks to ensure that taxpayers issue fiscal receipts with correct amounts.
Educating taxpayers on operation of EFDs.
Deployment of officers to monitor/check business premises that operate at odd hours.
Roadblocks to monitor movement of goods and ensure goods moved have fiscal receipts.
Authentication of receipts against goods purchased
Charging of heavy penalties on all VAT offences including obstruction of officers on duty, undervaluation, non issuance of fiscal receipts and closure or change of business without informing MRA.

18. Some VAT Non Compliance Penalties
EFD offences attract penalties stipulated in the Malawi VAT Act (2005). Two of the penalties are:
MK 500,000 (US$700) for non issuance of fiscal receipts or usage of the EFD. Upon conviction, to a fine of MK1 million (US$1400) or imprisonment for two years.
MK 5 million (US$7000) for taking defrauding steps in manipulating information sent to MRA through the EFD. Upon conviction to imprisonment for 2 years.
(US$ = MK715)

19. Thank You For Your Kind Attention