An Analysis of the Tax Incidence of VAT to Milk in Malawi

Cesar Revoredo-Giha, Luiza Toma and Faical Akaichi
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Faical Akaichi: Department of Rural Economy, Environment and Society, Food Marketing Research, Scotland’s Rural College (SRUC), King’s Buildings, West Mains Road, Edinburgh EH9 3JG, UK

Sustainability, 2020, vol. 12, issue 19, 1-17

Abstract: Dairy is a key investment sector for the Government of Malawi. On 1 October 2016, the Malawi Revenue Authority announced that milk, which until then had been exempted from value added tax (VAT), was going to be taxed at the standard rate of 16.5 percent. The measure has been met with strong opposition and thus, was short lived (eliminated in May 2017). The purpose of this paper is to present an analysis of the effect that such a tax would have on its incidence, on the different stages of the supply chain, and ultimately on its economic and social sustainability. The paper investigates these implications by developing a multimarket model applied to the Malawian dairy supply chain. The results indicate that 24.3 percent of the VAT revenues would be borne by consumers and the remaining 75.7 percent would be borne by the domestic dairy industry (i.e., processors and smallholder farmers). This was due mainly to the value of the price elasticity of consumers’ demand for pasteurised milk. The results highlight the vulnerability of inclusive value chains to economic policies that may affect consumers’ demand.

Keywords: Malawi; dairy industry; VAT; tax incidence analysis; supply chain models (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: An analysis of the tax incidence of VAT to milk in Malawi (2019)
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