Malawi

1Policy, Plans and Priorities

Vision 2020 &

Growth and Development Strategy II

The long-term development perspective for Malawi is set out in the Vision 2020 and has a series of medium-term operational strategies to attain it. The current implementation strategy is the Malawi “Growth and Development Strategy II– from Poverty to Prosperity (MGDSII 2011-2016)”. The main objective of the MGDS is to reduce poverty through sustained economic growth and infrastructural development. It aims to transform the country from a predominantly importing and consuming economy into a predominantly producing and exporting economy.

The MGDS II highlights sixthematic areas that shall be the basis for national development: Sustainable Economic Growth; Social Development; Social Support and Disaster Risk Management; Infrastructure Development; Governance; and Gender and Capacity Development. The nine key priority areas of the MGDS II are: Agriculture and Food Security; Energy, Industrial Development, Mining and Tourism; Transport Infrastructure and Nsanje World Inland Port; Education Science and Technology; Public Health, Sanitation, Malaria and HIV and AIDS Management; Integrated Rural Development; Green Belt Irrigation and Water Development; Child Development, Youth Development and Empowerment; and Climate Change, Natural Resources and Environmental Management.

Trade

Based on the fact that economic growth is export-led in Malawi, trade and export development have been identified as very relevant key priority areas and thematic fields.

Priority Sectors

Priority Sectors identified by the Government for investmentand trade are stated in section 5 of the Investment and Export Promotion Act (2012) and include :

  • agriculture;
  • agro-processing;
  • fisheries;
  • forestry;
  • manufacturing;
  • mining;
  • tourism; and
  • such other productive sectors as the Malawi Investment and Trade Centre (MITC) may, from time to time, determine with the approval of the Minister

Legal Framework

The Malawian legislation is based on English common law and the independence of the judiciary.

Investment Framework

The Investment and Export Promotion Act (2012) covers the government’s commitment to assist and strengthen the private sector which is acknowledged to assume the leading role in developing the national economy. The Act provides guidelines on the granting and processing of the Investment Certificate as well as the revocation of the same. Accordingly, the Act mandates the Centre to operate a one stop shop for business and investment registration. The Act further states that applications for relevant permits made through MITC shall be processed expeditiously and be granted within twenty-one (21) working days from the date of application is made.

Specific measures are partially described in the Act, but most details on the different topics are regulated in the supplement of the Act, the Investors Guide, and which is revised from time to time.

NATIONAL EXPORT STRATEGY

The NES launched in December 2012, is a prioritized roadmap (2013 - 2018) for developing a productive base for export competitiveness and economic empowerment. The strategy is based on four priority areas:

Developthree prioritised clusters to complement tobacco and drive exports through value addition - oil seed products, sugar cane products and manufacturers,

In addition, support existing clusters including tobacco and tea

Develop an environment conducive to economic competitiveness and economic empowerment of youth, women, farmers and SME’s

Invest in supportive economic institutions and organisations to build the economy’s productive base

Invest significantly in competencies, skills and knowledge

The Export Strategy prioritises the clusters of products to be groomed and promoted for exports and these are manufacturing, sugarcane and oil seeds.

2Investment AND TRADE Promotion

2.1Institutions

MITC

The Malawi Investment and Trade Centre (MITC) is the body corporate in charge of investment and trade promotion, investor assistance and advice to the Malawi Government on investment and trade matters. It was established by the Act of Parliament in 2012. It has a Board of Directors which consists of representatives of the private sector and Government departments.

MITC operates as one-stop investment centre to investors by providing the following services free of charge

  • Provide courtesy services to visiting investors;
  • Guide investors through the investment process in Malawi, i.e. assistance with permits, licences, land acquisition and various regulatory and legislative requirements;
  • Provide information on investment opportunities in Malawi;
  • Identify joint venture partners, market linkages, and business development;
  • Linking investors to the financial institutions and providers of professional and business services.
  • Obtaining permits and other business related registration certificates on behalf of the investors

Ministry of Industry and Trade

The Ministry of Industry andTrade is responsible for creating a conducive policy and regulatoryenvironment for industry, Trade Development, ensuring expansion of productsand services on the domestic and international markets; empowering Small andMedium enterprises and cooperatives to participate in economic activities.

The Ministry’s mission is therefore to promote, support and facilitate the development of industry, trade and private sector in both existing and potential growth sectors thereby increasing supply of value-added goods and services for domestic and international markets while sustaining comparative advantage.

Reserve Bank of Malawi

The Bank entails all functions of a central bank being responsible for the national monetary policy. It regulates all foreign capital transactions which have to be registered with the Bank. The Bank also regulates the banking sector under the Banking Act of 2010and the insurance sector under the Insurance Act of 2010 Even though the Bank has authority, the Ministry of Finance has the ultimate authority in the financial sector.

2.2Investment and Export Incentives

Malawian legislation allows for a number of incentives for investment in specific industries as well as in export industries. The incentives include customs duty, tax concession and exemptions, VAT exemptions and tax allowances.

Manufacturing

  • Pre business expenses up to 18 months are allowable expenses (sec 41 of the Taxation Act)
  • Losses are carried forward to six (6) years
  • Capital allowances & investment allowances are claimed as follows:
  • 100% on new and unused plant and machinery and industrial buildings,
  • 40 % on used plant and machinery and industrial building

Industrial Rebates

  • Investors can enjoy duty and excise exemption on raw materials if they choose to operate in designated industries in Malawi under industrial rebate scheme. Registered industrial rebate manufacturers are allowed to import raw materials duty and excise free under the CPC401 while VAT is 16.5%.
  • Use of this procedure implies a legal declaration that the goods are for the sole use in the industry declared and the importer will comply with all legal requirements and conditions relating to industrial rebate. Industries allowed to enjoy industrial rebate in Malawi are listed in the Eight Schedule of the Customs and Excise (Tariffs) Order.

Export Incentives

Current incentives applicable to exporting industries include:

  • 25% export allowance for non-traditional exports, these include: processed tea, processed tobacco etc.
  • 15% international transport allowance for non-traditional exports
  • Exports are zero-rated for purposes of Value Added Tax. It implies that exporters can claim input tax on course of production

Duty Drawbacks

The Export Incentives Act of 1989 gives a provision for tariff and excise drawbacks on goods exported within two years of manufacture on certain imported inputs used in the manufacturing process. Depending on the specific product, the drawback can be used in partial or total on products used in the manufacturing process. In order to qualify for such incentive, registered manufacturers have to apply to the Malawi Revenue Authority (MRA) for drawbacks and submit documentary evidence showing the use of materials and the export of the product. The MRA then determines the amount of duty drawback through a process of consultation with the manufacturer. Authorities state that the refunds process takes approximately 30 days. Exporters have to file their claims within six months of the date of export.

Registered Exporters

The Export Incentives Act also provides assistance to exporters of non-traditional exports. They have to be registered with the Malawi Investment and Trade Centre (MITC). Incentives for them are a 15% income tax allowance, duty drawback on imported raw materials including packaging materials for export production, technical assistance in promoting and marketing of export products and other activities, duty-free import of capital equipment used in the manufacture of exports, and a transport allowance that equals 25% of the international transport costs incurred to the exporter.

Addition incentives for attracting export-oriented zones have been developed with the time which led to the establishment of Export Processing Zones (EPZ) and other incentives for all exporters not operating in EPZs and including manufacturing in bond. These additional incentives are covered in the Investors Guide, the supplement of the Act. For the EPZ incentives please see section 2.3 below.

Tourism Sector

Investors intending to invest in the tourism sector in Malawi can enjoy the following incentives: free import duty, free import excise and VAT is zero-rated

CPC 4000.451 and 4071.451

Zero tax on off-road game/scenery viewing motor vehicles.

CPC 442 (a) Goods for hotels, Lodges and Inns – with 50 rooms and above.

i. Glass, china porcelain earthenware and stone articles of table ware, enamel and hollowware for table use Electo plated Nickel – silver and pated ware, knives, forks, spoons and similar articles for cutlery and marked linen etched stamped or in any manner marked with the name of the hotel.

ii. Industrial catering equipment, motor boats scuba diving, jet skis, kayaks, wind surfers, pedallos, air conditioners, generators, gym equipment, message equipment, industrial washing machines, bar fridges, sauna, hot steam baths for furniture and furnishings.

CPC 442 (b) Materials and equipment for the establishment of a conference centre of seating capacity of 200 people

Public address system, video conferencing equipment, television screens, amplifiers, LCD equipment and industrial catering and bar equipment and indelibly engraved, itched, stamped or in any other manner marked with the name of the hotel/Lodge or inn

CPC 450 two passenger motor vehicle

Two passenger carrying motor vehicles of tariff heading 87.02, except used motor vehicle in every five years for hotels, lodges and inns licensed under Tourism and Hotels Act, duty and VAT free

2.3EPZs, Freeports and other Special Economic Zones

Export Processing Zones (EPZs) are regulated under the Export Processing Zones (Amended) Act of 2013. Individual companies can apply for EPZ status at the Ministry of Industry and Trade which is the responsible authority for the Act. An Export Processing Zones Appraisal Committee is established through the Act, responsible for appraising and reviewing of applications and for making appropriate recommendations to the Minister. Important criteria influencing the approval of business entities as EPZs are job creation, technology transfer, export diversification, use of local raw materials, warehousing capability, and the proof of export markets. The EPZ status is granted for 5 years and can be renewed for two-year periods thereafter. The establishment of EPZs is based on the idea to encourage the production of non-traditional products in these zones.

Incentives

Investors operating in Export Processing Zones enjoy the following incentives:

  • No withholding tax on dividends
  • No duty on capital equipment and raw materials
  • No excise taxes on purchases of raw materials and packaging materials made in Malawi
  • No value added tax

However, certain goods are not eligible for exemptions and they are specified under section 18 of the Export Processing Zones Act of 2013.

2.4Tax Incentives

General Incentives

Please see the different tax incentives as described under section 2.2 and 2.3.

These tax incentives are claimable by all taxpayers

  • Losses are carried forward up to 6 years for traders
  • Initial and annual allowances at various rates are granted besides the depreciation (annual) allowances
  • Initial and annual allowances are claimed at various rates as stipulated by the Taxation Act.
  • Commercial building with a construction cost of MK 100 million or above, are subject to annual allowance at 2.5 %

A taxpayer can claim 50% allowance on social contributions paid directly into the building of a public hospital or school, or the sponsoring of youth sporting development activities.

Priority Industries

  • Agro-processing and Electricity Generation, Transmission & Distribution industrials are eligible and must be formally certified as “priority Industries” by the Commissioner General of Malawi Revenue Authority following due process.
  • Zero rated corporate tax for any number of years not exceeding the 10 years as determined by Priority Industries Approval Committee
  • Thresholds to qualify are as under:

i)Agro-processing:

  • Minimum US$500,000 for industries with 100% shareholding by Malawian citizens subject to verification of at least 35% value addition to the final product
  • Minimum US$5 million in any other case subject to verification of at least 35% value addition to the final product

ii)Electricity Generation, Transmission and Distribution

  • Minimum of US$30 million
  • Transmission means conveyance of at least 66,000 volts from generator or an import point to distributors or large customers or an export point through a transmission power system.

Agriculture Sector

Irrigation (CPC 446)

Investors in the irrigation sector enjoy import duty, import excise and VAT free (zero-rated) the following goods for direct use in irrigation: - PVC pipes, asbestos pipes/rubber seals, galvanized pipes, elbow, sprinkles rainers, control valves, solvent cement, diesel engine ranging from 12 kw- 17kw with tubes, pressure gauges and nozzles imported by a farming entity recognized by the Secretary of Agriculture.

Horticulture (CPC 448)

By investing in the horticulture industry, companies can enjoyexemption of duty, import excise and VAT free (zero-rated) onseeds, cuttings, seed netting green house structure, climate control equipment, 1 generator set, water pump or borehole, flower power lights, pump, electrical engines, diesel engine for irrigation with tubing, PVC piping, valves, sprinkler system, irrigation filters/nozzles, pressure regulators, new refrigerated trucks per five years, cold rooms, strapping materials and clips, metal wires, strings elastic bands, processing equipment, bag strikers, laboratory equipment, chemical and reagents, soil testing kits, moisture testers, graders, chemicals rose cutter, spray equipment, sealing equipment and fumigation equipment. These goods must be intended for export.

Fishing Industry (CPC 477)

By investing in the fishing industry companies can enjoy import duty, import excise and import VAT free (zero-rated) on importation of Machinery, plant, laboratory equipment and materials, aerators, pumps, blowers, diamond mesh, nets, measuring equipment, separators, specialized tanks and diffusers, boat engines and trawlers for deep sea fishing.

In addition, fishing vessels, factory ships and other vessels for processing or preserving fishery products are import duty free in their own right in the Customs and Excise (Tariffs) Order.

Poultry Farming

By investing in poultry farming companies can enjoy import duty free clearance of machines for cleaning, sorting or grading eggs, fruit or other agricultural produce, machinery for preparing animal feeding stuffs, poultry incubators.

Other Agricultural Goods

In addition to the incentives for the subsectors above, the following are some of the goods which are essential for farming and investors can enjoy duty free clearance in their own right according to the Customs and Excise (Tariffs) Order: Fertilizers, Pesticides, Herbicides, Ploughs, agricultural horticultural or forestry machinery for soil preparation or cultivation i.e. ploughs harrows, scarifers, cultivators, weeders, manure spreaders and fertilizer distributors and Milking machinery.

Zero tax on importation of livestock meant for breeding. Animals include bovine, swine, sheep and goats

Transport Sector

VAT free on other lifting, handling, loading or unloading equipment such as conveyers, teleferics

Road Transport (CPC 440)

Investors in the road transport industry can enjoy import duty, import excise and import VAT free (zero-rated) clearance of new buses and buses used for a period not exceeding five (5) years of a seating capacity of forty five (45) persons or more persons including the driver.

In addition, goods carrying motor vehicles exceeding 20 tonnes are import duty free but excise duty is payable.

  • Zero import duty on bicycles
  • 15% import duty on motorbikes with engine capacity not exceeding 250cc
  • 15% import duty on motor vehicles of seating capacity of 11to 31 persons including the driver and motor vehicles of 32 to 44 persons including the driver regardless of engine capacity and year of make

For vehicles of seating capacity of 32 to 44 persons including the driver

  • Zero excise duty for new and used vehicles not exceeding 8 persons
  • 10% excise duty for used motor vehicles exceeding 8 years but not exceeding 12 years
  • 25% excise duty for used motor vehicles exceeding 12 years

Rail Transport

In order to promote the railway industry, railway materials are import duty free and exempted from VAT.

Air Transport

In order to promote the air transport sector, aeroplanes and other aircraft of unladed weight exceeding 2,000kg are import duty free in their own right in the Customs and Excise (Tariffs) Order.

Energy Sector

In order to promote the energy sector, the following goods for use in electricity generation and distribution are import duty and import excise free:- fuses, transformers, sling, ring main unit, insulators, galle chain equipment, conductors, surge arrestors, column duplex, AAC/PVC and electricity supply meters.

Extension of the CPC for ESCOM under Customs & Excise Tariffs Order to all importers of electricity generation and distributing equipment to be duty free