Tax analyst Misheck Msiska says regulators should use their own laws to determine fake transactions in enforcing the Foreign Exchange Act to get resolution to the cases.

Msiska’s was reacting to measures contained in the Foreign Exchange Bill of 2022, which among others, met out stiffer penalties to those involved in transfer pricing with the intention of moving forex out of the country.

In a written response on Thursday, Msiska said in enforcing the Act, regulators should not be drawn into trying to prove that the concerned transaction is not at arm’s-length using the Taxation Act as this will be difficult to get resolution to the case.

Msiska: It is true that there is a serious problem involving
illegal repatriation of foreign currency

He said: “It is true that there is a serious problem involving illegal repatriation of foreign currency in the country. The hard stance government has taken on this matter should be able to curb the malpractice

“There are two perspectives to application of the arms-length principle with regard to related party transactions, the Malawi Revenue Authority [Taxation Act] perspective and the Reserve Bank of Malawi [RBM] perspective.”

Msiska pointed out that Section 127A of the Taxation Act as read with the Transfer Pricing Regulations seek to avoid loss of Malawi tax revenue [income tax] through overcharging of expenses or undercharging of income in transactions with related parties while RBM has a different aim and uses different laws in enforcing the arms-length principle with the aim of avoiding unnecessary repatriation of foreign currency.

He added: “On the other hand, improper transfer pricing under the Taxation Act is a totally different ball game. Since its introduction in 2009 and modified in 2017, the transfer pricing law has had difficulties in implementing, and transfer pricing audits by MRA have not yielded much in terms of resolving transfer pricing disputes and collecting tax revenue foregone through improper transfer pricing practices.

“The law is complicated and open to multiple interpretations.”

A Malawi Gazette Supplement notice dated November 23 2022 signed by Attorney General Thabo Chakaka-Nyirenda said the main objective of the Bill is to reflect the shift of the policy of the Reserve Bank of Malawi (RBM) from not only focusing on controlling forex transactions, but also the regulation of forex flows entering or exiting the country.

Anti-money laundering expert Jai Banda, who is also a private practice lawyer, is on record as having called for adequate coordination and intelligence exchange between financial agencies on suspicious transactions.

Figures from RBM show that Malawi lost about $980 million (about K1.02 trillion) to illegal foreign exchange externalisation and transfer pricing between 2010 and 2017.

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