Lilongwe Water Board, Tax Workshop

LILONGWE WATER BOARD
TAX WORKSHOP FOR OPERATORS
06-07 June 2019
Main Facilitator: Misheck Msiska

CONTENT
1. BASICS OF MALAWI TAX

2. TAX UPDATES
Page 2 Lilongwe Water Board Tax Workshop 2019

AIMS
► To present and discuss the basic principles of taxation in

Malawi with specific emphasis on LWB’s business.
► To train LWB’s tax operators on how to prepare and file
the various tax returns
► To train on how to maintain important tax records so that
they are readily available for inspection by management
and the tax authorities.
► To provide Important ta updates in Malawi and how they
relate to LWB
► Areas of difficulty in operation of tax in Malawi and how
the risks might be mitigated in relation to LWB

1.0 WHAT IS TAX
► Tax is a compulsory contribution to state revenue, levied

by the government on workers' income and business
profits, or added to the cost of some goods, services, and
transactions.
► Other words for tax: levy, tariff, duty, toll, excise, impost,
contribution, assessment, tribute, charge, fee, etc.
► Taxes are usually levied in order to finance government
activities but they are also used as a fiscal tool.
► Fiscal policy is the deliberate alteration of government
spending or taxation to help achieve desirable macro-
economic objectives by changing the level and
composition of aggregate demand.
1.0 WHAT IS TAX
► When the economy is experiencing a recession, fiscal

authorities use expansionary fiscal policy by increasing
government spending, lowering taxes or raising transfer
payments. On the other hand, when fiscal authorities
attempt to treat an overheating economy, they use
contractionary fiscal policy.

2.0 TYPES OF TAXES
► Taxes are broadly classified into: direct taxes and indirect

taxes.
► Direct taxes are taxes that are directly paid to the
government by the taxpayer. It is a tax applied on
individuals and organizations directly by the government
e.g. income tax or corporation tax.
► Indirect Taxes are applied on the manufacture or sale of
goods and services or upon importation of goods or
services. These are initially paid to the government by an
intermediary, who then adds the amount of the tax paid to
the value of the goods / services and passes on the total
amount to the end user.
► Examples of indirect taxes are value added tax and import
Page duties.
6 Lilongwe Water Board Tax Workshop 2019
3.0 INCOME TAX
► In Malawi, income tax is administered using the Taxation

Act.
► Income tax is a type of tax that is applied on income, or
profit.
► The Taxation Act provides guidance on determination of
“profit” subject to income tax, which in most instances is
different from the accounting profit.
► A tax computation is used to adjust the accounting profit
into “income” that is subject to income tax.

3.0 INCOME TAX
What is income?
According to Section 11 of the Taxation Act,
‘ The income of a person shall include the total amount in
cash or otherwise including any capital gain, received by
or accrued to or in favour of the person in any year or
period of assessment from a source within or deemed to
be within Malawi and his assessable income shall be that
income excluding any amount exempt from tax under this
Act.’
►

3.0 INCOME TAX
Notes:
► The word ‘otherwise’ means that income could be in a
form other than cash.
► Income is taxable whether received or not, as long as it
remains ‘due and payable’.
► Income is taxable even where the income ‘has been
invested, accumulated or otherwise capitalized by him or
that such income has not been actually paid over to him
but remains due and payable to him or has been credited
in an account or re-invested or accumulated or capitalized
or otherwise dealt with in his name or on his behalf’.

3.0 INCOME TAX
Notes:
► Capital gain, not disposal proceeds, is part of assessable
income.
► Income has to be assessed for each year of assessment
or period of assessment.
► Assessable income is total income minus exempt income.

3.0 INCOME TAX
► Exempt income is the income specifically exempted from
income tax as per Section 13 and the First Schedule of
the Taxation Act.
► Only income that has a source in Malawi will be subject to
tax in Malawi.
► An amount shall be deemed to have accrued to any
person from a source within Malawi whenever it has been
received by or has accrued to or in favour of such person-
► As remuneration for any services rendered or work of
labour done by such person in the carrying on in Malawi of
any trade, whether the payment for such service or work
or labour is made or is to be made by a person resident in
or out of Malawi, and wherever payment for such services
or work or labour is made or is to be made.
3.0 INCOME TAX
► Exempt income is the income specifically exempted from
income tax as per Section 13 and the First Schedule of
the Taxation Act.
► Only income that has a source in Malawi will be subject to
tax in Malawi.
► An amount shall be deemed to have accrued to any
person from a source within Malawi whenever it has been
received by or has accrued to or in favour of such person-
► As remuneration for any services rendered or work of
labour done by such person in the carrying on in Malawi of
any trade, whether the payment for such service or work
or labour is made or is to be made by a person resident in
or out of Malawi, and wherever payment for such services
or work or labour is made or is to be made.
3.0 INCOME TAX
► ALLOWABLE DEDUCTIONS
► Allowable deductions are expenditure and losses that are
deductible from assessable income in determining taxable income.
► Section 28 of the Taxation Act states: For the purpose of
determining the taxable income of any taxpayer, there shall be
deducted from the assessable income of such taxpayer the
amounts of any expenditure and losses (not being expenditure of a
capital nature) wholly and exclusively, and necessarily incurred by
the taxpayer for the purposes of his trade or in the production of
the income.

DISCUSSION 1
1. Which of the following are not allowable deductions and

why?
(a) Depreciation of fixed assets.
(b) Training expenses incurred by LWB on staff in the
accounting department.
(c) Compensation paid by LWB to a customer by order of the
court for damage caused by a burst water pipe.
(d) School fees for dependants of the Chief Executive.
(e) Losses incurred by LWB on the shares traded on the
Malawi Stock Exchange.
(f) Expenses incurred by LWB on reconnection.

Discussion 1 Continued
2. Which of the following is not assessable income in

Malawi?
(a) Income earned by a German company through direct
exportation of water pumping equipment by that company
to LWB in Malawi.
(b) Income earned by an American consultant on a LWB’s
project, but funded by the US Government.
(c) Amount received by LWB in form of interest charges and
penalties for late payment, disconnections, illegal
connections and other violations.
(d) Amount realized on sale of old furniture that is fully
depreciated to members of staff.
4.0 TAX COMPUTATION
Ø A tax computation is a statement showing the tax

adjustments to the accounting profit to arrive at the
income that is chargeable to tax, that is, taxable income.
Tax adjustments include non-deductible expenses and
losses, non-taxable receipts, further deductions and
capital allowances.
Ø The following are examples of common items that should
be added back to income in the tax computation:
(a) Depreciation
(b) Provisions
(c) Losses on disposal of fixed assets
(d) Unrealised losses and expenditure

4.0 TAX COMPUTATION
► (e) Donations, except for donations to prescribed

organisations, now capped at K5 million.
► (f) Legal fees (considered not incurred necessarily for the
business)
► (g) Expenditure and losses considered to be of a capital
nature
(h) Gains and income deducted from assessable income
in prior year(s) and realized during the year

4.0 TAX COMPUTATION
► The following items are deductible from assessable

income:
(a) Capital allowances
(b) Export allowances
(c) Losses and expenditure disallowed in prior year(s) and

realized during the year
(d) Unrealised gains or income of any kind
Demonstration: The income tax self-assessment return

Discussion 2
1. Construct a typical income tax computation.

2. Which of the following are allowable deductions and why:
(a) Expenditure incurred on furniture, computers and cell
phones, expensed in the company’s profit and loss
account per policy since the expense is below set
capitalisation threshold.
(b) Expenditure incurred by LWB as directed by Government
in rectifying pollution caused by the company’s waste
disposal.
(c) Legal fees incurred by the company for debt collection.
(d) Amortisation of computer software
(e) Cost of replacing ceiling boards on an office building
(f) Cost of office refreshments

5.0 CAPITAL ALLOWANCES
Capital allowances
Ø Capital allowances are granted in lieu of depreciation or
amortisation of assets in an income tax computation.
Ø The major difference between accounting depreciation
and capital allowances is that capital allowances are
usually used as an investment incentive and could be
granted at a rate much higher than normal depreciation
rate based on estimated lifespan of the asset.

Types of capital allowances
Ø The following are typical allowances associated with assets
used in the business:
(a) Initial allowance: granted in the first year the asset is brought
into use in the business. Not applicable on ‘private passenger
motor vehicles.’
(b) Annual allowance: granted on assets on an annual basis on a
reducing balance.
(c) Investment allowance: It’s a kind of allowance granted as an
incentive on plant and machinery, and industrial buildings for
manufacturers granted in the first year the asset is brought into
use in the business.
(d) Mining expenditure allowance: Special kind of allowance
granted to mining companies on ‘mining expenditure’ in the first
year of carrying out ‘mining operations’.
1.0 INCOME TAX
Continued
1.3.2 Rates of capital allowances

Type of Asset Investment Initial Annual Mining
allowance allowance allowance allowance
Plant and 100%
machinery
Industrial 100%
buildings
Motor cars 20%
Commercial 20% 20%/25%
vehicles
Equipment 20% 10%
Mining 100%
expenditure
Computers 20% 40%
Staff housing 10% 5%

1.3.3 Notes on capital allowances

Ø A manufacturer may elect to claim either investment
allowance or initial allowance on deserving assets, but not
both.
Ø Where initial allowances are claimed on industrial
buildings, the initial allowance rate is 10% and annual
allowance is 5%. Plant and machinery could enjoy initial
allowance at the rate of 20% and annual allowance of
20% or 25% depending on the intensity of use of the
asset.
Ø Capital allowances are claimable on staff housing
belonging to an employer who is also a manufacturer.
DISCUSSION 3
1. Construct a typical capital allowances schedule and

review and explain the formulae involved.

6.0 WITHHOLDING TAX
► Withholding tax is advance payment of income tax

► It is deductible upon payment for goods or services
► Withholding tax does not apply where the recipient is a

holder of a valid withholding tax exemption certificate
issued by the Malawi Revenue Authority
► Unless the recipient is exempted from income tax, a
normal withholding tax exemption does not apply on fees,
bank interest, payment for construction, commission,
labour, and rent.
► Withholding tax on supply of services usually poses a
challenge, especially in situations where there is no
“arrangement”.
Demonstration: Withholding tax return (WTF 2)
6.0 WITHHOLDING TAX
WHT rates:
Nature of payment Rate

%
Rent 15
Payment to contractors (building, construction) 4
Commission, services, casual labour over 20
K20,000, royalty, interest
Supplies of goods and foodstuffs 3
Haulage/carriage, fees 10

7.0 NON-RESIDENTS TAX
Non-Residents Tax (NRT)

Ø NRT is deductible on Malawi source income payable to
non-residents, where the income cannot be attributed to a
permanent establishment of that person in Malawi.
Ø NRT is due only on payment or accrual for services
rendered by non-residents.
Ø No NRT is deductible where the recipient is resident is in
a country that has a double tax agreement (DTA) with
Malawi exempting the specific income.
Ø The standard rate of NRT is 15% of gross income.

7.0 NON-RESIDENTS TAX
DTA Income not exempt from NRT in Malawi
Malawi/UK Rent and management fees
Malawi/RSA Management fees, interest, dividends
Malawi/Netherlands Management fees, rent, dividends
Malawi/Sweden Management fees, rent
Malawi/Switzerland Management fees, rent
Malawi/France Management fees, rent

8.0 PAY AS YOU EARN (PAYE)
► PAYE is deductible from employment income, or

remuneration.
► “employer’s representative” means a person approved as
such a representative by the Commissioner for the
purposes of paying remuneration, and includes an
employer;
► “remuneration” means any amount of taxable income
which is paid or payable to an employee as salary, leave
pay, an allowance, wages, overtime pay, a bonus, a
gratuity, a commission, a fee, an emolument, pension,
superannuation, a retiring allowance or a stipend, whether
in cash or otherwise and whether in respect of services
rendered or otherwise.
8.0 PAY AS YOU EARN (PAYE)
PAYE Rates:
1st 20,000 is taxed at 0%

Next 5,000 is taxed at 15%
Excess of 25,000 is taxed at 30%
Demonstration: PAYE forms

Discussion 4
1. Which of the following are not subject to WHT and why?

(a) Contribution by LWB towards employee pension.
(b) Interest payable by LWB on a loan obtained from Press
Corporation Limited
(c) Prepayment of rent for next year.
(d) Payment to the PPPC during a privatization drive.
(e) Accrual of an amount for services already supplied.
(f) Payment in advance for supply of goods.
(g) Payment of fees to investment managers.

Discussion 4
► 2. Which of the following is “remuneration” for PAYE

purposes?
► (a) An allowance given to an employee for
accommodation, meals and other expenses while carrying
out official duties away from his normal work place.
► (b) An allowance given to an employee on a monthly basis
to pay for fuel.
► (c) Long service award

9.0 PROVISIONAL TAX
Ø Provisional tax is advance payment of income tax.

Ø It is payable in quarterly instalments based on the
taxpayer’s estimation of the income tax liability for the
financial year.

10.0 FRINGE BENEFITS TAX
Ø Fringe Benefits Tax (FBT) is tax payable on benefits in

kind provided by the employer to the employee.
Ø A fringe benefit would be in any form and will be subjected
to FBT as long as it has an ‘element’ of personal benefit
for the employee.
Ø FBT is payable by the employer providing the benefit.

1.6.1 Determination of taxable values:

Type of benefit Taxable value
Motor vehicle 15% of original cost
Housing (rented) Total cost to employer, or 10%/12%
of employee salary for
unfurnished/furnished housing,
whichever is greater.
Housing (employer-owned) 50% of either Market rental value, or
50% of 10%/12% of employee
salary for unfurnished/furnished
housing, whichever is greater.
Household items, utilities, vacations, Total cost to employer
household services
School fees for dependants 50% of cost to employer

Concessionary loan interest Difference between open market
rate and rate actually paid by
employee

Notes
Ø Where property is owned by employer, security and
gardening is not a separate taxable benefit.
Ø Foodstuffs and medical assistance provided by the
employer to the employee are not a taxable benefits.
Demonstration: Fringe benefits taxable figures calculation

11.0 TAX COMPLIANCE DATES
Ø 14th of every month: Payment date for PAYE, WHT, NRT.

Ø 14th January, 14th April, 14th July, 14th October: FBT
payment.
Ø 25th January, 25th April, 25th July, 25th October:
Provisional tax payment dates for taxpayer with financial
accounting date of 31 December. For other accounting
dates, provisional tax is due within 25 days after the end
of the quarter.
Ø 20th of every month: Excise payment date
Ø 25th of every month: VAT payment date.
Ø 180 days after end of financial year: income tax return
submission.

12 TAX PENALTIES
(a) Late tax return: K300,000 penalty and an additional

K50,000 for each month
(b) Late income tax payment interest: 20% unpaid tax and
prevailing lending rate plus 5% annual, calculated
monthly
(c) Late PAYE and VAT payment: 20% of the unpaid tax and
prevailing rate plus 5%

12.0 TAX PENALTIES
(d) Late remittance of WHT: 20% of the unpaid tax and

prevailing bank rate plus 5% per annum, for each month.
(e) Late remittance of NRT: 20% of the unpaid tax and
prevailing bank rate plus 5% per annum, for each month.
(f) Late remittance of Excise: 20% of the unpaid tax.
(g) Unpaid or under-paid provisional tax:
Ø If 90% of tax liability paid as prov. tax: 0%
Ø If less than 90% but not less than 50% paid as
provisional tax: 25% of the unpaid amount of tax.
Ø If less than 50% is paid as provisional tax: 30% of the
unpaid amount of tax.

12.0 TAX PENALTIES
(g) Omissions in the income tax return, eg. Wrong claim of

allowances, under-declaration of income etc.: 100% of the
tax involved, and 200% of the tax involved if the omission
is wilful or fraudulent.

Discussion 5
1. Calculate PAYE penalty on PAYE of K2 million that

remains unpaid for one and a half years.
2. Calculate provisional tax penalty for a Malawi incorporated
company based on the following information:
Taxable income: K90,000,000
Provisional tax paid: K6,000,000
3. Calculate capital gain on disposal of a piece of land based
on the following information:
Year of acquisition: 2000
Original cost: K5,000,000
Disposal Price: K15,000,000
Date of disposal: 30 June 2018
13.0 TAX ON CAPITAL GAINS
Ø Tax on capital gains is not a separate tax in Malawi. It is

part of income tax.
Ø There are two types of assets for capital gains tax
purposes: assets on which capital allowances are claimed
and assets on which capital allowances are not claimable.
Ø Gains or losses on assets eligible for capital allowances
are determined by deducting the disposal proceeds from
the tax written down value.

13.0 TAX ON CAPITAL GAINS Continued
Ø Gains on assets not eligible for capital allowances are determined by

deducting disposal proceeds from the ‘basis’ or the ‘adjusted basis’.
Ø The basis for an asset is the open market price of the asset on the
date of its acquisition by the taxpayer. For assets other than those
eligible for capital allowance, the basis is the cost adjusted by the
consumer price index, published by the National Statistical Office at
the date of disposal of the asset and applicable to the year in which
the purchase or the construction of the asset was effected or
completed, as the case may be.
Ø Adjusted basis, in the case of corporate shares other than additional
shares, increased by amount of any contribution to capital. In case of
assets on which capital allowances are claimable, decreased by any
capital allowances claimed. In the case of assets not eligible for capital
allowances increased by any additions and improvements

13.0 TAX ON CAPITAL GAINS Continued
Ø Capital gains are aggregated with taxable income from

trading operations and subjected to income tax.
Ø Please note that capital gains realised in the year or
period of assessment can be used to offset capital losses
for the year or capital losses brought forward from prior
years. But capital losses may not be used to reduce
taxable profits from trading operations; they have to be
carried forward to be offset against future capital gains.

Tax on capital gains is not applicable on the following:

(a) Transfer of capital asset from a person to a spouse
(b) Transfer of capital asset from deceased estate to a child

or spouse.
(c) Transfer from an individual into a trust.

Ø No capital gain shall be recognized on the disposal of a

business asset, if the gain has been used to acquire a
qualifying replacement asset similar to, or related in
service or use to, the asset so disposed.
Ø Roll-over relief is available within 18 months from the
date the disposal took place

Involuntary conversion
No tax on capital gains is applicable on involuntary
conversion
“involuntary conversion”, in relation to an asset, means the
conversion of an asset by whatever means which, in the
opinion of the Commissioner, is beyond the control of the
taxpayer, including, but not limited to, destruction in whole
or in part, theft, seizure, requisition, condemnation, or
threat or imminence of destruction;

Involuntary conversion
Ø Where a taxpayer whose asset has been involuntarily
converted makes an election and acquires an asset that is
similar to, or related in service or use to, the asset so
converted (hereinafter referred to as the “qualifying
replacement asset”) within two years, capital gain, if any,
shall be recognized only to the extent that the amount
realised as a result of such conversion exceeds the cost
of the qualifying replacement asset.

Qualified reorganisation
Ø No tax is applicable on capital gain realised on transfer of
assets in a ‘qualified reorganisation’
► “qualified reorganization” means a reorganization of a
company or companies resident in Malawi pursuant to a
written plan undertaken for valid business purposes and
which does not have as its purpose tax avoidance by any
person who is a party to the reorganization;

Qualified reorganisation
► For the purposes of the Taxation Act, “reorganization” means-
(a) a mere change in a company’s form;
(b) a recapitalization of a company;
(c) a combination of two or more companies into a single
company;
(d) a division of a company into two or more companies;
(e) the acquisition of at least eighty per cent of the equity interests
in a company in exchange solely for equity interests in the
acquiring company; and
(f) the acquisition of at least eighty per cent, by value, of the
assets of a company in exchange solely for equity interests in
the acquiring company.

Discussion on capital gains

1. (a) A company in the real estate business (developing and renting out
property), sells a commercial property and uses the proceeds to
acquire a residential property. Is the company entitled to roll-over
relief?
(b) If your answer in (a) is yes,
Proceeds: K200 million
Gain: K70 million
Value of replacement asset: K90 million
Is there any taxable gain? Would the situation be different if the value
of the replacement asset was K50 million?

14. TAX UPDATES
14.1 TRANSFER PRICING

► Malawi passed the law introducing Transfer Pricing (TP)
Regulations in the 2009/10 National Budget.
► TP is an important tax risk currently, as TP audits have
become a primary focus for MRA
► Complete Transfer Pricing Regulations were introduced
with effect from 1 July 2018
► The new TP regulations require that companies which
transact with related parties should maintain a TP
document

14. TAX UPDATES

► Transfer pricing is about transactions between related
parties, wherein it is stipulated that the level of pricing in
transactions between related parties should be at levels
that would apply if the transacting parties were not related
► It is a fact that the owners of businesses with common
ownership are interested only in profitability of the “group”
and they may allow sale or purchases between related
parties to be lower or higher than “arms-length” as long as
the group business interests are achieved
► The important terms in transfer pricing are “related
parties” and “arms-length”
14. TAX UPDATES

Section 127A of the Taxation Act:
(a) …two persons are considered to be related where –
(i) one person participates directly or indirectly in the management,
control or capital of the other or
(ii) a third person participates directly or indirectly in the management,
control or capital of both.
(b) A person participates directly or indirectly in the management, control
or capital of another person where the person-
(i) owns, directly or indirectly, more than 50% of the share capital of the
other person; or
(ii) has the practical ability to control the business decisions of the other
person
(c) The rights or powers attributed to the person include the rights or powers of
any person associated to the person by marriage, consanguinity or affinity
14. TAX UPDATES

► Arms-length price is the open market price, that is, the
price unrelated parties would charge each other for similar
goods or services
► There are various methods of testing a related party price
if it is at arms-length
(a) Comparable Uncontrolled Price (CUP) Method
(b) Resale Price Method
(c) Cost-Plus Method (CPM)
(d) Profit Split Method
(e) Transactional Net Margin Method

14. TAX UPDATES
14.2 Thin capitalisation

Ø Thin capitalisation is the financial branch of transfer
pricing which looks to apply the arm’s length principle to
company funding - to treat companies which are in a
special relationship, for tax purposes, as if they were
independent of each other and acting only in their own
separate interests.
Ø A company may be said to be thinly capitalised when it
has more debt than it either could or would borrow acting
purely in its own interests, leading to the possibility of
“excessive” interest deductions (i.e. a greater amount than
would arise if the borrower was acting at arm’s length from
the lender or guarantor).
14. TAX UPDATES

Ø Put differently, a company is said to be thinly capitalised
when its capital is made up of a much greater proportion
of debt than equity.
Ø When debt is higher than equity we say that the
company’s ‘gearing’ or ‘leverage’ is too high.
Ø High gearing may cause problems with MRA who might
be concerned about abuse by excessive interest
deductions for income tax purposes.
Ø The recommended debt to equity ratio in Malawi is 3:1
Ø “Debt” means related party loans and other indebtedness

which attract interest or finance charges

14. TAX UPDATES

Ø “debt” excludes interest-free related party loans, but
includes third-party loans guaranteed by related parties
Ø “Equity” includes share capital, retained earnings, related
party interest-free loans and revaluation reserve

14. TAX UPDATES
14.2 Thin capitalization Illustration

Income before financing expenses K1 billion
Related party debt K2 billion
Equity K100 million
Interest at 10% K200 million
Foreign exchange loss (realized) K300 million
Recommended debt to equity ratio 3:1
All things constant what is taxable income

without debt to equity ratio restriction
With debt to equity ratio restriction

14 VALUE ADDED TAX BASICS AND ISSUES
► Value Added Tax (VAT) is a form of consumption tax.

► From the perspective of a buyer, it is the tax on the
purchase price.
► From that of the seller, it is a tax only on the value added
to a product, material, or a service, from an accounting
point of view, by this stage of its manufacture or
distribution.
► The manufacturer remits to the government the difference
between these two amounts, and retains the rest for
themselves to offset the taxes they had previously paid on
the inputs.....

14 VALUE ADDED TAX BASICS AND ISSUES
► A VAT is like a sales tax in that ultimately only the end

consumer is taxed. It differs from the sales tax in that,
with the latter, the tax is collected and remitted to the
government only once, at the point of purchase by the end
consumer”.
► Investopedia defines VAT as “A type of consumption tax
that is placed on a product whenever value is added at a
stage of production and at final sale.”
► According to the India Finance and Investment Guide,
“Value Added Tax (VAT) is a general consumption tax
assessed on the value added to goods and services.”

14.1 TAXABLE PERSON
► A taxable person is a person who is registered for VAT

under the VAT Act.
► A person is eligible for registration if he/she makes taxable
supply of goods or services or has grounds to believe that
he or she will qualify as a taxable person.
► All supplies are taxable except for ‘Exempt Supplies’
specified in the First schedule to the VAT Act or ‘Relief
Supplies’ specified in the Third Schedule to the VAT Act.

14.2 TAXABLE TRANSACTION
► A taxable transaction is a transaction that is not a VAT

exempt transaction.
► A transaction is taxable only if it is carried out by a taxable
person.
► Sale, barter, lease, transfer, exchange, gift and
appropriation to own use are examples of taxable
transactions.
► Performance of services for another person; making
available of a facility or advantage; or tolerating any
situation or refraining from doing of an activity, are
examples of taxable supply of services

14.3 PLACE OF SUPPLY
► Place of supply is important to determine whether Malawi

VAT is chargeable or not.
► For supply of goods, place of supply is the place from
which goods are supplied.
► For services, place of supply is the place of business of
the supplier or the place from which the service is
supplied or rendered.
► In the case of telecommunication services, the place of
supply is where the facility or instrument for the emission,
transmission or reception of the services in respect of
which the invoice for the supply is issued, or is to be
issued, is ordinarily situated in Malawi.
14.4 TIME OF SUPPLY
► For transfer of taxable goods by a taxable person by whatsoever

means, time of supply is the time ownership of the goods passes to
the other person.
► For appropriation to own use, time of supply is the day the goods are
appropriated to own use.
► Where supplies are made on a continuous basis or by metered
supplies, the time of supply shall be the determination of the supply or
the first meter reading following the introduction of Value Added Tax
and subsequently at the time of each determination or meter reading.
► For all other cases, time of supply is the earlier of the date (a) goods
are moved from the premises, (b) goods are made available to the
person to whom goods are supplied (c) the services are supplied or
rendered, (d) payment is received for all or part of the supply (e) a tax
invoice is issued.

14.5 WHO ACCOUNTS FOR VAT
► The person making supply of a taxable good or services is

responsible for accounting for the VAT.
► In case of imported goods, the person importing the goods
should account for VAT.
► For imported services, the receiver of the services should
account for VAT.
► VAT is a consumption tax and ultimately the person who
consumes the taxable goods or services pays the VAT.

14.6 VALUE OF SUPPLY
According to Section 27 of the VAT Act:

“The value of a taxable supply is—
(a) where the supply is for money consideration, the amount
of the consideration with the addition of all duties and taxes
but excluding Value Added Tax;
(b) where the supply is not for money consideration or is only
partly for money consideration, the open market value of
similar supply excluding Value Added Tax.”

14.7 CONDITIONS FOR INPUT VAT CLAIM
► A registered VAT operator may deduct from output VAT,

input VAT suffered on inputs used wholly, exclusively and
necessarily in the business.
► One has to be a registered VAT operator, or a taxable
person for VAT
► The input should be used in the business
► Persons dealing in VAT exempt supplies cannot claim
input VAT
► Persons dealing in zero-rated supplies are considered
taxable for VAT and may claim input VAT

► Persons dealing in both taxable and exempt supplies may

claim VAT on inputs into the taxable portion of the VAT
only.
► Where it is impossible to allocate shared inputs (and the
VAT) between exempt and taxable supplies, the input VAT
has to be apportioned and only VAT that bears the same
ratio as taxable supplies bear to total supplies should be
deducted against output VAT.
► Notwithstanding the usage, VAT on purchase, running and
maintenance of motor cars is not claimable. Motor cars
are vehicles meant mainly or solely for private passenger
use, excluding cycles and buses.

► Notwithstanding the purpose of a trip, hotel

accommodation and meals as considered ‘entertainment’
and the associated VAT is not claimable. Entertainment
also includes office refreshments and meals.
► VAT may not be claimed on any item that is personal to an
employee, director or any other person, which does not
have direct or exclusive bearing on the business.
► Input VAT may not be apportioned on mixed inputs where
exempt supplies are more than 95% of total outputs; none
of the input VAT can be claimed. In the same way, all
mixed input VAT is claimable if exempt supplies are less
than 5% of total outputs.

14.9 VAT REFUNDS
► A taxable person may seek a refund of the excess VAT if

the input VAT is more than the output VAT due.
► A taxable person that is in a refundable position for a
continuous 3 months may apply for a VAT refund.
► The Commissioner General is supposed to give the refund
within thirty days of the application being submitted, but
MRA usually delay refunds due to lack of funding.
Demonstration: VAT return form

14.8 VAT ON LEASES
► VAT is applicable on both finance and operating lease.

► Section 24 of the VAT Act states:
“The supply of goods under a hire purchase agreement or finance lease
occurs on the date the goods are made available under the hire
purchase agreement or lease finance, as the case may be.
(4) Where— …..
(b) goods or services are supplied under an agreement or written law
which provides for periodic payment, the goods or services shall be
treated as successively supplied for successive parts of the period of the
agreement or as determined by that law, and each successive supply
occurs on the earlier of the date on which payment is due or received.”

14.9 VAT ON LEASES/CONTINUOUS SUPPLY
As per Section 27 of the VAT Act, The taxable value of a

“taxable supply of goods under hire purchase agreement or
finance lease….is the open market value of the goods or
services at the time the supply is made, excluding, in the
case of a hire purchase agreement or finance lease, any
interest or finance charges.”

Discussion 6
► 1. Which of the following is deductible input VAT?

► (a) Input VAT on maintenance of a saloon car used as a
pool vehicle used exclusively for business
► (b) Input VAT on legal fees
► (c) Input VAT on furniture at a dwelling house owned by
LWB and occupied by employee.

Discussion 6
2. Which of the following is a taxable output for VAT and on

what value?
(a) Sale by LWB of old cars to employees
(b) Reconnection fee
(c) Interest for delayed payment
(d) Electricity units given to members of staff
(e) Old fully depreciated computers given to staff at zero
price.

15.0 CUSTOMS AND EXCISE
► Customs and Excise duties or import duties are

administered using the Customs and Excise Act.
► Import duties are applicable on goods imported into the
country.
► The Customs and Excise Act also provides guidance on
exportation of goods, as to whether those goods require
export duties, export licenses or export permits.
► In Malawi import duties are threefold: customs duty,
excise duty, and import VAT.
► The basis for customs duty is Cost, Insurance and Freight
(CIF)

► In most cases, import duties are charged on ad valorem

basis, that is, on the value of the goods, rather than on
specific basis, that is, on numerical basis.
► Import duty, especially excise, is charged on tobacco
cigarettes on specific basis, that is at US$15 per 1,000
cigarettes.
► The detailed classification of goods and rates of import
duties are found in the Customs and Excise (Tariffs)
Order.

CHAPTER 15 – (continued)
III:15
1 2 3 4 5 6 7 8 9 10 11
_____________________________________________________________________________________________
____
15.10 1510.00.00 Other oils and their fractions,
obtained solely from olives, whether
or not refined, but not chemically
modified, including blends of these
oils or fractions with oils or fractions
of heading 15.09 . . .. .. kg 30% 25% 5% 25% 25% 16.5%
15.11 Palm oil and its fractions, whether
or not refined, but not chemically
modified.
1511.10.00 -Crude oil . . .. .. .. kg 25% 10% Free 10% 10% 16.5%
1511.90.00 -Other .. .. .. .. kg 30% 25% 5% 25% 25% 20%16.5%
15.12 Sunflower-seed, safflower or
cotton-seed oil and fractions thereof,
whether or not refined, but not
chemically modified.
-Sunflower-seed or safflower oil and
fractions thereof:
1512.11.00 --Crude oil . . .. .. .. kg 25% 10% Free 10% 10% 16.5%
1512.19.00 --Other .. .. .. .. kg 30% 25% 5% 25% 25% 20%16.5%
-Cotton-seed oil and its fractions:
1512.21.00 --Crude oil, whether or not gossypol
has been removed .. .. kg 25% 10% Free 10% 10% 16.5%
1512.29.00 --Other .. .. .. .. kg 30% 25% 5% 25% 25% 20%16.5%
15.13 Coconut (copra), palm kernel or
babassu oil and fractions thereof,

► (a) column 1 contains the heading number;

► (b) column 2 contains subheading number;
► (c) column 3 contains a description of the goods classified thereunder;
► (d) column 4 contains a description of unit of quantity, weight, or quantity of goods
classified thereunder;
► (e) columns 5 and 6 contain the rates of customs duty in respect of the goods classified
under the corresponding subheading;
► (f) column 7 contains COMESA rates of customs duty in respect of goods classified
under the corresponding subheading;
► (g) column 8 contains SADC rates of customs duty for imports from other Member
States other than South Africa, in respect of goods classified under the corresponding
subheading;
► (h) column 9 contains SADC rates of customs duty for imports from South Africa only, in
respect of goods classified under the corresponding subheading;
► (i) column 10 contains excise rates;
► (j) column 11 contains Value Added Tax rates;
► (ja) column 12 contains Withholding Tax (WHT) on imports;

Discussion
► Calculate import duties on sunflower edible oil imported

from RSA:
Cost: K5 million
Insurance and freight: 0.5 million

END OF PROGRAMME
► For further details or queries please contact:
► Misheck Msiska, MBA, Bsoc (Econs)

► Partner, EY
► Email: Misheck.Msiska@mw.ey.com
► Cell: 0993 211 211/0888 853 151

Lilongwe Water Board, Tax Workshop

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LILONGWE WATER BOARD

TAX WORKSHOP FOR OPERATORS

06-07 June 2019

Main Facilitator: Misheck Msiska

1. BASICS OF MALAWI TAX

Page 2 Lilongwe Water Board Tax Workshop 2019

► To present and discuss the basic principles of taxation in

Page 3 Lilongwe Water Board Tax Workshop 2019

► Tax is a compulsory contribution to state revenue, levied

► When the economy is experiencing a recession, fiscal

Page 5 Lilongwe Water Board Tax Workshop 2019

► Taxes are broadly classified into: direct taxes and indirect

► In Malawi, income tax is administered using the Taxation

Page 7 Lilongwe Water Board Tax Workshop 2019

Page 8 Lilongwe Water Board Tax Workshop 2019

Page 9 Lilongwe Water Board Tax Workshop 2019

Page 10 Lilongwe Water Board Tax Workshop 2019

Page 13 Lilongwe Water Board Tax Workshop 2019

1. Which of the following are not allowable deductions and

Page 14 Lilongwe Water Board Tax Workshop 2019

2. Which of the following is not assessable income in

Ø A tax computation is a statement showing the tax

(c) Losses on disposal of fixed assets

(d) Unrealised losses and expenditure

Page 16 Lilongwe Water Board Tax Workshop 2019

► (e) Donations, except for donations to prescribed

Page 17 Lilongwe Water Board Tax Workshop 2019

► The following items are deductible from assessable

(b) Export allowances

(c) Losses and expenditure disallowed in prior year(s) and

Demonstration: The income tax self-assessment return

Page 18 Lilongwe Water Board Tax Workshop 2019

1. Construct a typical income tax computation.

(d) Amortisation of computer software

(e) Cost of replacing ceiling boards on an office building

(f) Cost of office refreshments

Page 20 Lilongwe Water Board Tax Workshop 2019

1.3.2 Rates of capital allowances

Page 22 Lilongwe Water Board Tax Workshop 2019

1.3.3 Notes on capital allowances

1. Construct a typical capital allowances schedule and

Page 24 Lilongwe Water Board Tax Workshop 2019

► Withholding tax is advance payment of income tax

► Withholding tax does not apply where the recipient is a

Nature of payment Rate

Page 26 Lilongwe Water Board Tax Workshop 2019

Non-Residents Tax (NRT)

Page 27 Lilongwe Water Board Tax Workshop 2019

DTA Income not exempt from NRT in Malawi

Malawi/UK Rent and management fees

Malawi/RSA Management fees, interest, dividends

Malawi/Netherlands Management fees, rent, dividends

Malawi/Sweden Management fees, rent

Malawi/Switzerland Management fees, rent

Malawi/France Management fees, rent

Page 28 Lilongwe Water Board Tax Workshop 2019

► PAYE is deductible from employment income, or

1st 20,000 is taxed at 0%

Demonstration: PAYE forms

Page 30 Lilongwe Water Board Tax Workshop 2019

1. Which of the following are not subject to WHT and why?

Page 31 Lilongwe Water Board Tax Workshop 2019