As rampant smuggling of different products threaten to cripple local manufacturers, an economist Dr Betchani Tchereni has urged the government to introduce strong measures to curb the illegal activity.
There has been a rise of smuggled items in different districts including Karonga, Mulanje, Ntcheu, Dedza, Thyolo and Mchinji.
Most of the smuggled items that pass through these areas include wheat flour, cooking oil, fizzy drinks and wrappers.
It is flour and cooking oil that are being smuggled the most currently and this is due to the introduction Value Added Tax (VAT) on the two items.
However, Tchereni, who is also a lecturer at Polytechnic University, said the government must lower tax rates.
“We need government to consider broadening the tax base while lowering tax rates. In so doing people may not be attracted to smuggling. It is when the cost of smuggling is lower than the cost of bringing goods the right way that people resort to smuggling,” said Tchereni.
The economist asked the government to tread cautiously on the matter.
“Smuggling happens mainly because people are trying to avoid what may be deemed as punitive tax rates. This is mostly for a predominantly importing country such as Malawi, government raises a big chunk of its revenue from import taxes because that’s where a huge economic activity is taking place
“For the traders to be competitive, they then try to reduce costs by smuggling so that they can also avoid income tax and VAT when they reach their respective shops.
“As they do so however, they are depriving government of revenue which would have been used to develop this country. In short, therefore, smuggling actually delays development, causes government to be under pressure to finance deficits and also opens up to substandard commodities to be sold in the country,” he said
However, Agri Value Chain Limited Operation-In-Charge Rajneesh Dabral insists the best way to overcome smuggling is to remove VAT on cooking oil and wheat flour.
“We were in this situation before between 2015 and 2017. The situation was bad as Cooking Oil manufacturing companies started firing employees as we could not compete with smuggled cooking oil. But all that changed when VAT on cooking oil was removed. Things like tightening security and enhancing border patrols do not work,” he said.