The tobacco industry provides 60% of Malawi's foreign income and employs 500,000 people. (Gianluigi Guercia/AFP via Getty Images)
2020 was a good year for Alliance One Tobacco (Malawi) Limited, which controls 40% of Malawi's tobacco market. It is a local subsidiary of Pixus International, which is one of the world's largest agricultural companies.
In the same year, Alliance One exported approximately 27 million kilograms of Malawi tobacco, valued at $173.6 million (based on analysis of export data). continent.
Corporate tax in Malawi is set at 30% of corporate profits.
The government would be expected to receive a significant amount of income tax from this revenue. However, documents from the Malawi Revenue Authority were leaked. continentindicating that the company is not actually paying anything.
The document also covers 2021 and shows Alliance One paid just $41,000 in income tax after exporting at least $151 million worth of cigarettes.
Alliance One did not respond to our request for an explanation as to why it was reporting little or no profit, even though it had significant export revenue at the time.
The Malawi Revenue Authority declined to comment on the matter, saying taxpayer matters are confidential.
Where did all the money go?
Leaked documents provide clues as to what happened.
It shows that during the two years covered, Alliance One actually paid $843,000 in a category called “withholding taxes.” This is a 20% tax imposed by the government on payments made by local companies to foreign companies.
It suggests Alliance One may have shifted $4.2 million in taxable profits out of Malawi through such payments. This is a technique that multinational companies can use “to shift profits and avoid taxes,” said Vincent Kiesebrink, a researcher at the Netherlands-based Center for the Study of Multinational Enterprises.
Payments to foreign entities that help multinational companies avoid taxes are usually in the form of interest or royalties on loans between related companies. Alliance One's parent company, his Pyxus International, had 53 subsidiaries around the world by March 2020, giving it plenty of room to maneuver.
Customs data also shows that Alliance One sold about a fifth of its tobacco to sister companies within the Pixas International Group. This he averages $5.31 per kilogram, which is lower than the average $5.39 per kilogram sold to unrelated companies.
Selling within a group at less than fair market value can also help companies avoid taxes in high-tax countries by lowering the amount of sales revenue they must declare. In 2020 and 2021, Alliance One appears to have reduced its sales revenue in Malawi by more than $980,000 due to this practice, often referred to as transfer pricing.
A loser for most Malawians
Michael Musukwa grows tobacco in the northern region of Malawi. He has a contract to supply crops to Alliance One, but said the contract is exploitative and provides little profit. He serves as chairman of his group of 30 farmers who are contracted with the Alliance He One.
“We want to improve our livelihood and feed our families…. But [Alliance One] “They benefit more from tobacco cultivation than us farmers,” he said. “When you're doing contract farming, you're locked in. You can't say anything about tobacco,” he added.
Alliance One ties its contracted farmers to selling only to itself and relies on banks to finance fertilizer and other inputs. The company promises to pay banks if farmers default on their loans. Muskwa agreed to a loan of 5 million kwacha ($2,980) for the recent farming season, but 10 million kwacha was deducted from the sales proceeds to repay the loan, leaving him with 2 million kwacha after three months of work. He said he remained.
“It's like farming just to pay off a loan. Compared to the amount of money and energy you invested, you got very little,” Muskwa said.
The company denies that its contracts with farmers are exploitative, saying: “We put farmers at the center of everything we do.”
Despite leaving most of the cost of tobacco production to farmers, the multinational corporation gets away with declaring that it makes little or no profit from the sale of tobacco. “Those in charge know these companies are not paying enough, but someone may be profiting from these deals at the expense of our sweat.” Muskwa said.
And it affects more Malawians than tobacco farmers. This “undermines the government's ability to invest in areas that are important to Malawians. With limited resources, the government has failed to invest in the health, agriculture and education sectors,” Social Responsibility said. said expert Wales Chigwembe.
Despite this situation, farmers feel they have no choice but to cooperate with companies. “We couldn't afford to procure inputs. If there were sustainable means of growing tobacco without companies, we wouldn't involve them,” Maskwa said.
This collaborative cross-border investigation was supported by CiFAR (Civil Forum for Asset Recovery)..
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