How taxpayers are robbed using VAT

**How Taxpayers Are Losing Money Through VAT Refund Claims**

*By Justin Mkweu*

The Financial Intelligence Authority (FIA) has identified a series of tax fraud cases involving value‑added tax (VAT) refunds that have resulted in significant losses for the Malawi Revenue Authority (MRA). Between 2022 and 2024, the FIA recorded 90 instances in which non‑governmental organisations (NGOs), businesses and individuals were alleged to have engaged in fraudulent VAT claims.

**Understanding VAT Refunds**

VAT in Malawi is a consumption tax set at 17.5 percent. Businesses collect the tax from consumers and remit it to the MRA. When a business incurs VAT on inputs that are later used to produce zero‑rated goods—such as fertilizer, which is exempt from VAT on its final sale—it may be entitled to claim a refund for the VAT paid on those inputs. NGOs are also exempt from VAT on services they procure, allowing them to seek reimbursement from the MRA for any VAT paid.

**Alleged Fraudulent Claims**

The FIA’s latest report highlights several examples of alleged misuse of the refund system:

* An unnamed organisation is reported to have submitted VAT refund claims totalling K1.5 billion. According to the FIA, the claims were supported by fabricated receipts for purchases from hotels, motor‑vehicle dealers and electronic‑goods suppliers. The report states that “the MRA employee fraudulently examined the submitted claim receipts and signed them off as qualifying for VAT refunds.” The individuals involved were subsequently arrested.

* In another case, an unnamed NGO is alleged to have filed false VAT refund claims. The organisation reportedly completed a VAT refund claim form with the MRA, asserting expenses that could not be verified.

**Legal Framework**

The Taxation Act provides that NGOs may claim refunds for VAT incurred on services they purchase, provided the expenses are legitimate and properly documented. Similarly, businesses that incur VAT on inputs used to produce zero‑rated products are entitled to refunds when they can demonstrate that the VAT was paid but not collected from customers.

**Response and Enforcement**

The FIA’s investigation led to the arrest of those implicated in the K1.5 billion case. The authority has emphasized the need for stricter oversight of VAT refund processes to prevent further losses of public revenue.

**Implications**

The reported cases illustrate vulnerabilities in the VAT refund system that can be exploited when internal controls are bypassed. Strengthening verification procedures and ensuring transparency in the handling of refund claims are seen as essential steps to safeguard taxpayer funds.

The FIA continues to monitor VAT-related activities and urges businesses and NGOs to adhere strictly to the legal requirements governing VAT refunds.

Article source: times.mw | Image credit: The Times Group