Any business or entrepreneur will always salivate and crave for prospects of easy access to cheap capital. There are various reasons for this, but the two main ones are to expand the business and of course run away from the ever escalating cost of money on the market where commercial interest rates are high.
But the truth is cheap capital is hard to find. Ethical businesses continue to strive on business efficiency and financial prudence while unethical businesses survive on unethical malpractices such as tax evasion. Instead of paying taxes to ensure that Government’s resource envelope should not dry up, they abuse the tax as cheap capital for their business.
One tax area that unethical businesses have been cashing in as a source of cheap capital for their business is Value Added Tax (VAT). Value Added Tax is collected by registered businesses who have registered in accordance with the VAT law then they remit it to the Malawi Revenue Authority (MRA).
Any person who sells taxable goods and services and whose business turnover is estimated or exceeds K10 million per year is obliged to register for VAT.
Over the years, the challenge in VAT administration has mainly been non-issuance of tax invoices by some of the registered taxpayers.
Put simply, unethical businesses collect VAT from consumers, but the same is not remitted to MRA. An example would be where a customer walks into a shop and the trader asks whether he wants a cash sale or receipt and the price is inflated if one chooses a receipt.
The good news is that the honeymoon is over. Government is implementing Electronic Fiscal Devices (EFD). The EFD is a tool that is helping curb non-remittance of VAT to MRA. This is the case because currently all sales transactions by VAT registered businesses are now being monitored electronically.
The scenario is that when a consumer pays for a product, the EFD registers it and transmits details of all the sales to MRA servers, hence providing evidence of sales transactions in a technically-easy and undisputed way. All the consumer needs is to get a copy of his receipt.
EFDs were introduced because some businesses were not remitting the correct amounts of VAT to MRA, thereby depriving government of the much needed resources for development activities. Further, many traders were also over-claiming input VAT.
The EFD is a tool which is being used to ensure that all VAT are accounted for and correctly collected. As of now it is mandatory for every VAT operator to procure, install and use these machines at all times.
This progressive drive towards incorporating advanced technologies when collecting taxes is ongoing because already on the ground there are various initiatives that MRA is already implementing for the benefit of the public like the migration to ASYCUDA World, a web-based system that supports paperless declaration and clearance of goods.
On the other hand, it is the duty of every Malawian to demand fiscal receipts from all traders who charge VAT as this will bring assurance that taxes have indeed gone to their intended destination while at the same time ensuring tax compliance of VAT registered taxpayers.
There are various benefits of the EFDs to VAT operators and consumers. The fiscal device can keep information for more than five years and with the EFD, the traders have choice to print out copies at any time of their choice because the machine is reliable, which is an improvement from the way such records have been kept.
The machine is now providing a platform for reliable computerisation of the tax auditing process because verifiable, authentic electronic files and the fiscal memory in the device will now make it possible for the tax authorities to use computers to instantly verify a large number of invoices.
Therefore, the number of disputes on due VAT during tax audits will be greatly reduced since the fiscal device’s fiscal memory can provide indisputable evidence for the innocence or guilt of the user.
As a nation, Malawi is assured of well accounted for tax revenues as the system closes the gaps that were there before contributing to losses while also being fair to all taxpayers by ensuring everybody pays their share of taxes.
Therefore, it is a fact that the EFD is a tool which has come to stay and assist in ensuring transparent declarations and remittances of VAT.
The coming in of this technology is to guarantee that members of the public are assured that correct amounts of all their taxes collected by VAT operators reach MRA and eventually Government without deprivation.
As stated earlier, although access to capital is proving more and more challenging, this must not be an excuse for under-declaration of taxes by any one.
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