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Ecam queries pension tax

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KHAKI—Signed the letter

Dust is refusing to settle regarding a decision by the government to implement Value Added Tax (VAT) on pension administration fees with the Employers Consultative Association of Malawi (Ecam) describing the move as hurried.

Ecam has since written the Ministry of Labour highlighting how detrimental the decision will be for the industry.

The letter signed by Ecam Executive Director, George Khaki, which The Daily Times has seen, says implementation of the levy has been done without necessary consultations in line with international obligations to which Malawi is a signatory.

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It adds that pension, just like banking and life insurance under the VAT Act (2005), must be exempted as a supply service.

“The implementation of the tax is being done at a time when the business community is facing a lot of challenges which threaten employment and economic development. This tax measure will derail efforts employers have committed to minimise job losses and to promote decent work.

“Failure to comply with VAT is an offence. This will add to the ever-increasing compliance issues the business environment is grappling with,” reads the letter in part.

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Ecam has since requested the government to instruct the Commissioner General of the Malawi Revenue Authority (MRA) to issue a directive to suspend compliance with the VAT Act with respect to pension until consultations are undertaken and Parliament subsequently amends the law.

In an interview MRA Head of Corporate Affairs, Steven Kapoloma, said the Authority made clear its position on the matter in a statement published earlier.

The statement indicated that MRA has not introduced Vat on any industry but only implementing section 16 of the VAT Act which deals with Vat on supply services.

“Pension administrators’ charge an administration fee for managing pension schemes, the fee attracts Vat like any other fee charged on taxable services,” reads the statement in part.

Minister of Labour, Ken Kandodo, referred the matter to the Ministry of Finance saying they deal with issues of taxes.

Spokesperson in the Ministry of Finance, Williams Banda, said the Ministry will make an official statement on the matter once they receive a formal letter.

“We have not received the letter and therefore we cannot comment on the document however when we receive it we will be able to offer a statement on the same,” Banda said.

This comes against a background of a leaked communiqué between general manager of Nico Pension Services Limited, who was writing the company’s chief executive officer, notifying him of effecting Vat on pension administration fees from September 1, 2020 a few weeks ago.

“We would like to advise you that the industry has received communication from MRA that Vat will be levied on pension administration fees effective September 1, 2020.

“This means that going forward the current administration fees paid by your organisation, you should add Vat at the value of 16.5 percent of fees payable,” reads the letter in part.

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