Smuggling and how it denies Malawians revenue and jobs
Malawi’s economy has for a long time been agro-based and the gradual change in global commodity market prices has led to a considerable reduction in the country’s forex earnings.
And recent donor fatigue has added more challenges to the already fragile economy.
The decision by donors to withdraw their traditional budgetary support to Malawi means that Malawi has to survive on local resources and to a large extent, the resources are generated through tax collection from various sectors of the economy.
However, for the past year, the national tax collector, Malawi Revenue Authority (MRA), has been performing below expectations. The body can hardly meet its monthly targets but, this is not because the tax collection body is lazy, no, but rather MRA is facing tough challenges in its tax collection efforts, among them tax evasion.
On the other hand, the practice of smuggling products that are similar to those produced in the country is also on the rampant. While these greedy Malawians create wealth for themselves, scores of Malawians continue to suffer as the government, using the little resources it has, cannot manage to provide essential needs for every Malawian like good roads, drugs in hospitals, proper schools and of course infrastructure development.
Smuggling entry point at Luchenza Municipality
A visit at Luchenza Municipality tells how bad smuggling is crippling the country’s economy. Three quarters of goods sold at Luchenza market are smuggled into the country from neighbouring Mozambique. Commodities such as footware, cassava, charcoal, cooking oil, paraffin, textiles, batteries, cigarettes and baking flour among others, are all making their way into Malawi from Mozambique through unchartered routes.
It is not a secret as these goods are sold openly. Using simple mathematics, these illegal imports, if they could pass through proper channels and pay all the necessary taxes, the country could be able to generate millions of kwacha just around Lucheza.
But these informal routes are not only being used in Luchenza. Mulanje, Ntcheu, Karonga, Mwanza and Nsanje are other unchartered entry points for these goods. The revenue missed is more than enough to support hospitals in these districts, schools, construction of bridges and other development activities, but all this wealth goes to very few individuals. A visit at Luchenza revealed that some of these unscrupulous traders use motor bicycles while others ride bicycles to cross from Lolo village in Thyolo crossing Thuchira river into Khayanu village taking shortcuts that will see them crossing Ruo river to Mwanyanje village into Mozambique.
This journey according to Sautso Mchere takes about seven hours to have the goods on the market. “We leave early in the morning around 4am and using our bicycles we are able to carry eight 20 litre jerry cans of cooking oil or paraffin. Those with motor bicycles do manage to carry up to ten 20 litre jerry cans. We are normally back to the market at around 11 am,” he said. Mchere said after delivering the goods, they return back to Mozambique in the afternoon and come back into Malawi with the smuggled products crossing Ruo River at around 5 am.
This reporter spent 30 minutes at Thuchira bridge in Lolo village and witnessed five bicycles carrying cooking oil crossing Mulanje going to the Luchenza market.
Another one hour spent at Ruo River in Mbowela, was an eye sore as bicycles carrying bags of footware and gallons of cooking oil kept passing through the village. Canoes criss-crossed the river, ferrying the goods from Mwanyanje into Malawi. All these activities were taking place openly and under the sun. If this revenue was well accounted for, Malawi could ably fund its national budget without looking to donors for support.
Effects on Manufacturers
In separate interviews, Mapeto DWS and SunSeed Oils said rampant smuggling has forced them to scale down their operations. The companies said as a consequence of scaling down operations, some of their employees had been retrenched. SunSeed Oil Limited general manager Wasim Kassam said the issue of smuggling has a negative impact on the country’s economy.
He said smuggled products are cheaper because the smugglers avoid paying taxes. “As SunSeed, we are largely affected by these smugglers. Our production at the moment has gone down by almost 60 percent as we cannot compete with the smugglers on the market,” he said.
Kassam said as manufacturers they pay excise duty and Value Added Tax which increases the cost of production, while the smugglers pay nothing to the government. He said for local manufacturers to compete with the smugglers, it means the government has to come in and remove some of the taxes.
“The smugglers do not create jobs or pay taxes. All they do is make huge profits for themselves. As a company, our monthly taxes to MRA have actually gone down because our sales are affected. If this continues, we have no choice but to close down, because at the moment, we have already scaled down,” said Kassim.
Ministry of Industry and Trade
While the country is attracting more investors and encouraging them to put up manufacturing companies, the problem of smuggling might frustrate all these efforts.
Ministry of Industry and Trade publicist Wiskes Nkombezi said Malawi laws prohibit the smuggling of goods on which required customs or excise duties have not been paid.
He said such duties are fixed by law to raise revenue and to influence commerce. He said bypassing such duties undercuts those that pay the duties and results in unfair competition on the market.
“The ministry despises smuggling due to the injury it causes to revenue collection, industrial growth, fair competition on the domestic market and consumer welfare. The ministry, therefore, will always commit itself to fight smuggling and give strong support to all stakeholders such as Malawi Revenue Authority and the Malawi Police Service in this fight. The ministry would also wish to call upon all stakeholders to join hands in this fight,” said Nkombezi.
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