Dairy farmers in the country are crying foul in respect to the 3 percent withholding tax they are subjected to.
The farmers are taxed 3 percent on their milk delivered at milk bulking groups, which in most cases are not cooperatives. But the 3 percent withholding tax on milk sales has own cost implications to the formal milk marketing system.
The Civil Society Agriculture Network (CISANET) in its March report on Livestock and Dairy Development Thematic meeting says project manager of Malawi Milk Producers Association (MMPA) Herbert Chagona in his presentation explained that there are a lot of challenges that farmers are facing regarding the withholding tax.
CISANET with financial assistance from Irish Aid is implementing a project in which one of the objectives is to increase awareness of farmers and the general public in government policy process in agriculture and also provide grassroots evidence and the farmer’s voice in policy formulation process.
“As a result of this arrangement, there are a lot of challenges that farmers are facing regarding the withholding tax, it is the individual farmer that are effectively taxed, since the rates apply on the gross amount the individual farmers realise, this minimizes drastically the farmers threshold gains than any other business comparatively analyzed in Malawi.
In the report, Chagona explains that milk collected in cooling tanks is a contribution of milk from individual farmers whose annual income does not exceed the no taxable threshold of K25 000.00 and this has resulted in gross milk volumes records depicting a huge decrease in the formal sector especially between the years 2011 and 2013.
“Since some of the farmers contribute as little as 5 litres into the cooling tank, it was unjustifiable to deduct this tax from the bulked milk since most of the dairy farmers are already paying a lot of tax through other mediums.
“As it stands now, legal frameworks provides mandate to farmers to annually claim back these deductions upon submission of a return income from MRA [Malawi Revenue Authority] and these efforts started about four years ago but efforts to have these tax collections refunded have proved futile,” he explains.
He says the 3 percent withholding tax has discouraged a lot of farmers and therefore a considerable number of them are selling their milk informally by vending which puts the formal milk market at risk and poses environmental health hazards to the communities purchasing the milk.
The question then that was posed to the stakeholders was: “How do we assist farmers, should this 3 percent withholding tax be abolished, or should it be twisted in another way?”
“What can government do to provide an enabling environment for farmers to sell their milk at the centres and return increase volumes in the formal sector?”
His presentation was titled “Challenges Subsistence Dairy Farmers are facing as a result of withholding tax on milk at Milk Bulking Group Level”.
CISANET national director Tamani Nkhono Mvula observed that the 3 percent withholding tax on milk is does not make sense.
“Government is taxing farmers when it should have been supporting them. That is having an overall growth on the sector. It does not make sense at the end of the day to tax a farmer whose threshold is less than K25 000,” he said.
CISANET has also proposed that government should impose a 5 percent levy on imported milk products to protect the country dairy industry.
In a policy brief released last week, CISANET suggests that proceeds from the levy should be put into the National Dairy Development Fund to support the development of the smallholder dairy industry.
CISANET conducts policy interactions at three levels, namely district, thematic and national.
Department of Animal Health and Livestock Development (DAHLD) at the Livestock and Dairy Development Thematic meeting provided an update regarding the review of the Milk and Milk Products Act after consultative meetings were held about a year ago.
The department was explained that changes in responsible officers at the department handling the task have delayed the whole process.
The department also informed participants that in their last meeting, a year ago, participants to the consultative meetings noted that the current act does not have a specific regulatory authority to guard the affairs of milk production in the country, as a result all the issues concerning regulations, monitoring of the dairy production activities were done by DAHLD which could not manage to provide regulatory services due to inadequate capacity.
It was therefore suggested that there is need to have an established legal body that should be responsible for that and it was to be named as a National Dairy Industry Development Authority (NDIDA).
NDIDA objectives, vision, functions and power of the authority are clearly stated in the draft act. Financial provision regarding funds collection, and funding of the NDIDA was proposed based on the fact that on the current act the fees that are there are not prohibited enough.
The current act advocates the establishment of cooling centres as lack of these has an eminent risk on public health because the milk as of now is not being stored under the right conditions.
A law which will balance issues and the challenges concerning the sale of raw milk is under draft. It was reported that Malawi has a potential to produce milk but back up services are not adequate.
DAHLD reported that due to the urgency of the matter and because issues of acts are legal in nature, the department was mandated by participants to the consultative meeting that a lawyer should be hired through the Ministry of Agriculture headquarters to help in the legal vetting of the act.
During the Livestock and Dairy Development Thematic meeting held last month, the meeting urged government to play its part by making sure the farmers are given their claims dating back to all the years when Withholding Tax was introduced as the stakeholders are still engaging with the relevant authorities to have WHT abolished.
CISANET will take a leading role in engaging government on the same.
In closing, the director of programs for CISANET Cindy Kibombwe made a commitment to the participants that issue 3 percent withholding tax will be taken up with vigour and a Position Paper will be submitted to the Ministry of Finance.
She said efforts to have the Milk and Milk Products review process finalised will be made accordingly.