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An analysis of the tax incidence of VAT to milk in Malawi

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  • Revoredo-Giha, Cesar
  • Toma, Luiza
  • Akaichi, Faical

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.
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  • Revoredo-Giha, Cesar & Toma, Luiza & Akaichi, Faical, 2019. "An analysis of the tax incidence of VAT to milk in Malawi," 2019 Sixth International Conference, September 23-26, 2019, Abuja, Nigeria 295671, African Association of Agricultural Economists (AAAE).
    • Handle: RePEc:ags:aaae19:295671
    DOI: 10.22004/ag.econ.295671
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    1. Fernianda Rahayu Hermiatin & Yuanita Handayati & Tomy Perdana & Dadan Wardhana, 2022. "Creating Food Value Chain Transformations through Regional Food Hubs: A Review Article," Sustainability, MDPI, vol. 14(13), pages 1-24, July.

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