1. MALAWI REVENUE AUTHORITY
MANAGING VAT COMPLIANCE AND AUDIT OF TELECOMMS INDUSTRY
Case for Malawi

2. CONTENTS LTO Audit structure Overview of Telecom Industry
Taxation of the industry
VAT
Managing compliance
VAT contribution from the sector
Audit issues
Challenges
Way forward

3. LTO AUDIT STRUCTURE Manufacturing sector
Retail sector & Wholesaling sector
Mining sector
Financial sector
International Taxation Unit
Excise Unit
Service sector – deals with Telecoms companies

4. OVERVIEW OF THE INDUSTRY
The telecommunications sector is fast-growing but still underdeveloped in Malawi.
Telephone penetration rates in Malawi are the lowest in the Southern African Development Community (SADC) region.
Mobile phone penetration in Malawi is 38%.  
Existing mobile phone companies have a combined customer base of about 5 million
Malawi’s population is over 17 million.

5. OVERVIEW OF THE INDUSTRY cont…..
The Industry in Malawi is regulated by the regulatory body- Malawi Communications Regulatory Authority(MACRA)
The body grants licenses according to classification ( e.g. network operators and radios)
MACRA regulates and monitor usage of licenses

6. THE FOUR PLAYERS Airtel Malawi Limited – Biggest
Telekom Network Malawi (TNM) – Second biggest
Malawi Telecommunication Ltd (MTL) – Third and Oldest
Access Communication Limited – Smallest

7. TAXATION OF THE INDUSTRY
VAT
Income Tax
Excise Tax
PAYE
Withholding Tax
Non Resident Tax (NRT)- Charged on
management fees,
interest on foreign loans and
any payments made to Non-resident service providers

8. LEGAL FRAMEWORK
Income Tax Act
VAT ACT
Customs and Excise Tax

9. VALUE ADDED TAX Standard rate of 16.5%
Based on service utilization i.e.
Voice Calls,
Internet Data and
Sale of hardware & equipment
0 % on international incoming calls

10. MANAGING VAT COMPLIANCE
Four main approaches are used to manage compliance of the players in the industry
Use of Self assessment returns
Use of tax audits
Use of Client Relationship management approach
Advisory visits

11. MANAGING VAT COMPLIANCE
Use of self assessment return
The adoption of self assessment has resulted in enhancing compliance in return filling not only for this sector, but other sectors as well.
Return submission for the sector is excellent
Use of tax audits
Traditional way of checking the accuracy of the submitted information
Audit cycle for the sector is every two years

12. MANAGING VAT COMPLIANCE
Client Relationship management approach
Only one officer from the Taxpayer Service Unit of the LTO is used as a point of contact with the Taxpayer.
The approach has been very effective and efficient in managing the compliance of the industry both on payments and return submission
Advisory visits
To advise on compliance issues expected from the taxpayers
Cementing on their existing compliance practices
Availing ourselves to them in case they have issues

13. VAT CONTRIBUTION FROM THE SECTOR
Months
VAT from Telecom
Total vat remitted
% of Total VAT remitted
June 2017
1,213,265,271.27
6,798,747,677.4
18%
May 2017
1,025,971,957.53
5,885,383,414.65
17%
April 2017
739,778,807.07
6,267,162,538.75
12%
March 2017
1,189,555,018.61
6,255,765,150.06
19%
February 2017
1,127,944,898.31
6,007,402,060.98
January 2017
1,704,100,733.04
7,889,192,661.82
22%
Totals
7,000,616,685.83
39,103,653,503.66

14. AUDIT ISSUES Manipulation of call data records (CDRs)
Transfer pricing through services and goods sourced from related parties
Prepaid customers may be configured in the billing systems as postpaid
Claiming of provisional input VAT
Bonuses and promotions distort pricing

15. CHALLENGES
Complexity of IT systems i.e. Highly sophisticated IT system installed in Telecom Companies, such as the billing system - difficult to audit
Huge volume of transactions-challenge to verify declarations & claims on VAT return
Inadequate resources such as IT specialists, to get and analyze information from telecommunication industry.
Changing market focus through diversification - mobile money banking services

16. WAY FORWARD
Capacity building of tax officials to unpack/understand the operations of this industry i.e. organizing meetings with the industry participants and recruiting experts from the industry.
The introduction of Consolidated Information Regulatory Management System (CIRMS) by MACRA will help MRA in having quality information regarding revenues since the machine will be able to read and analyze Customer Dialing Records (CDR) and come up with how much revenue should have been reported. It will bring independent verification of information

17. WAY FORWARD CONT…
To improve the capacity of data analysis by auditors, MRA has procured IDEA and ESKORT tax audit tool. Training for both tools are underway.
MRA is working on establishing an MOU with regulatory authority (MACRA) for purposes of information sharing.
Sharing experiences among the VADA countries is vital to control transfer pricing issues of MNEs

18. Zikomo