Chinese firm in dubious tax deals
A Chinese-owned cigarette manufacturing company, Vision International Limited based at Kanengo, Lilongwe, is entangled in dubious tax dealings, The Daily Times can reveal.
Few weeks ago, Malawi Revenue Authority (MRA) temporarily sealed the company’s factory after noting that it was selling cigarettes without tax stamps.
The Daily Times investigation in Kasungu and Mponela found out that the company was supplying Brothers cigarettes to sellers without the MRA tax stamp on the pack.
The company, which produces six brands of cigarettes, with a popular brand called Brothers, started operating in 2015 after being given an investment permit by the Malawi Investment Trade Centre (MITC) in August.
It is a trade requirement that all cigarette packs produced and sold in the country should bear an MRA tax stamp, which helps the tax-collecting body to easily calculate duty. Without the tax stamp, Vision was not remitting the correct taxes to government.
Although the company is adding value to the locally produced tobacco, the government and people of Malawi are not benefiting much from their investment while the company continues to make huge profits. This practice has also hit hard competitors on the market as Vision products are cheaper compared to similar legal products on the market who fulfill the requirements set by MRA.
Chinkhwiri is one of the areas in Mponela, Dowa where the majority of people earn a living through farming. Communities here are mostly tobacco farmers; this is one of the areas where Vision has found a good market.
One of the traders, Douglas Titus said he buys a packet of Brothers cigarettes at K270 and sells it at K400 generating a profit of K160 per packet or K1,600 per brick. In comparison, Titus buys other brands from other manufacturers at K4,350 per brick of 10 cigarette packs.
“Brothers cigarettes are cheap and are selling fast here. We are able to make huge profits from these cigarettes as compared to other brands from other companies.
“From the other brands, we only make a profit of K650 per brick which is K65 per packet,” said Titus, adding that he has been selling Brothers cigarettes for five months.
Titus says per week, he sells five bricks of the brand translating to 20 bricks or 2,000 cigarettes per month.
However, what sellers like Titus do not know is that selling cigarettes that do not have tax stamps is robbing the community of development projects, health care services and education. On this day The Daily Times visited Chikhwiri, patients were being turned away from Chinkhwiri Health Centre. According to the patients interviewed, there were no drugs at the health centre. The clinic had closed by midday.
According to MRA tax rates, cigarettes attract duty of US$15 per 1,000 sticks. This is based on the daily exchange rate provided by the banks. Chinkhwiri Trading Centre has about 10 shops which The Daily Times inspected and found out that they were selling the cigarettes without MRA stamps.
The Daily Times investigation compelled the Ministry of Industry and Trade and Malawi Investment Trade Centre to jointly inspect Vision premises in Kanengo.
The visit revealed that although the company was given an investment licence, it is operating three companies using one licence. This means the government cannot account for the transactions taking place in the two other companies — Shanghai Tobacco Group and Waung Hong Tobacco Group.
The ministry’s publicist Wiskes Nkombezi said a couple of anomalies were indeed noted which Vision International management should explain.
He said the company also failed to display and produce their investment licence which is not supposed to be the case.
“There are a number of anomalies that we noted. We saw that the MRA stickers that are meant for tax purposes are doubtful if [at all] they are genuine. Also packaging of some cigarettes is being done in cartons without MRA tax stamps and we will seek guidance from MRA.
“MRA administers issues of tax and in this case we will be calling MRA to advise us if we indeed prove that the company is evading tax. We will also look at labour issues which we will involve the Ministry of Labour,” said Nkombezi.
He further said for the investment licence, which was issued by MITC, the ministry will also have a discussion with MITC and a decision will be made after further discussions with Vision Management.
In an email response MRA publicist Steve Kapoloma said the authority cannot provide the information requested by the reporter because it was confidential.
However, reliable sources at the tax collecting body confirmed that Vision factory was sealed temporarily for evading duty. The source said currently, MRA is still assessing and calculating how much the government has lost.
“The company was assessed and given a penalty which it paid that is why the factory resumed its operations. The company was told to stop producing cigarette packets without tax stamps. However, MRA is still calculating a number of taxes including PAYE, excise, VAT and corporate to establish how much the government has lost,” said the source.
The company’s officers who were contacted by The Daily Times during the investigations, James a Chinese national and a Mr Ngwata, refused to comment on the tax issues. But in a telephone interview on Wednesday, a Mrs Mwale – who did not disclose full details of herself and the position in the company — said her boss was better placed to grant an interview but went further to say the issue of tax stamps was cleared by MRA.
She added that MRA was in a better position to explain how the company was cleared and allowed to continue operating.
“Talk to MRA, they will give you all the information you need. I cannot give you more information,” said Mwale.
However, Competition and Fair Trading Commission refused to comment saying MRA formally handles issues of tax.
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