Parliament Tuesday passed the Value Added Tax (VAT) Bill allowing the removal of 16.5 percent VAT on cooking oil, sanitary pads and tap water, among other commodities, effective April 1 2022.
The move could, to an extent, offer a sigh of relief to consumers of the commodities, who have been subjected to an elevated cost of living lately.
A 2 litre bottle of cooking oil, for instance, is being sold at between K6,900 and K7,200 from between K4,200 and K5,200 in January. This represents a 38.4 percent rise within 10 weeks.
The bill, which has also abolished the withholding VAT agent scheme and introduced VAT on moulds for plastics or rubber, will trigger lowering of the prices, according to Minister of Finance Sosten Gwengwe.
Amid pessimism from some commentators who say the impact would not be huge, Gwengwe insisted that the prices of cooking oil must drop, considering that 90 percent of cost of production is from the importation of the crude oil.
“This is not a political negotiation; it is for the good of Malawians. Our analysis shows that 90 percent of the cost is on the importation of crude oil. Therefore, exempting is the best,” he said.
However, Democratic Progressive Party (DPP) spokesperson on finance, Joseph Mwanamvekha, said the prices would only drop by zero-rating and taking into consideration macro-economic fundamentals of inflation and the exchange rate.
United Democratic Front spokesperson on finance Lilian Patel said Malawians are waiting for the reduction of cooking oil prices.
“Now that the government has removed the VAT on water, cooking oil the expectations are that prices will drop. Let’s not complicate matters. We want the prices to be reduced by 16.5 percent,” he said.
Patel and Mwanamvekha, however, cautioned Gwengwe on the introduction of VAT on plastics moulds, arguing the cost would be imposed on customers largely in rural areas, where plastic products are mostly used.
On the other hand Mulanje Bale legislator Victor Musowa said government should consider increasing VAT on thin plastic moulds to control thin plastic production in the country.
Last week, Minister of Trade Mark Katsonga Phiri said his ministry would not hesitate to issue out licenses and allow interested parties to import cooking oil.
Lately, Malawians have been subjected to ever skyrocketing prices of basic commodities emanating from external forces and other structural challenges, locally.
For instance, a recent Basic Needs Basket Report published by the Centre for Social Concern showed that the cost of living for a family of six in an urban setting rose to K221, 543 in the month of October, the highest recorded in the country.
This represents an 11 percent increase year-on-year when compared to the K198,917 recorded in October 2020 and a 6.8 percent rise month-on-month compared to K207,334 in September.
The situation has also been reflected in headline inflation, which went up in February to 13 percent from 12.1 percent recorded in January.