Communication - Presse

State agrees to reform VAT in 2023 as condition of IMF financial aid

Mozambique’s memorandum of understanding with the International Monetary Fund (IMF) that allowed for financial support for the country provides for an “ambitious reform” of VAT in 2023.

“The necessary legal changes will be made to implement the elimination of VAT exemption and zero rates,” on certain products, “in order to ensure that the reform comes into force on 1 January 2023,” the document states, while noting that the date is only a “reference indicator”.

The 59-paragraph memorandum provides for a VAT reform with broadening of the tax base and the end of some exemptions, protecting essential goods.

READ: Mozambique: Conditions for IMF support – A Verdade

“To minimise the impact on the most vulnerable families, exemptions and zero rates on basic goods will be maintained,” it states.

The document was published on Wednesday on the website of the Mozambican ministry of economy and finance (MEF) and consulted by Lusa.

According to the document, “broadening the VAT base will create a robust and fair revenue collection mechanism that does not depend on volatile commodities,” whilst the government, “is committed to eliminating some VAT exemptions and zero rates.

Value Added Tax (VAT), which is levied on transfers of goods, services and imports, came into force in Mozambique in 2008 and has a rate of 17 percent – however, most of the population lives and shops in the unofficial economy, without any taxation.

The reform is a commitment made by the Mozambican government to achieve one of the objectives set out in the memorandum with the IMF: to turn a deficit into a surplus within two years.

“Taking as a starting point a primary balance after grants of -1.6 percent of GDP in 2021, the target is to achieve a primary surplus by 2024,” the document states.

In the same way, over the next four years the government will reduce the weight that public sector salaries have in the economy.

The portion of national wealth that goes to public sector salaries “is above the average for the region and peer countries,” reaching 13.8 percent of GDP in 2021, the agreed points read.

The government is “implementing measures to better manage the cost of employment in the public sector and bring the wage bill to around 10.8 per cent of GDP by 2026” – whether or not this will mean a loss of purchasing power will depend on other factors such as price trends and economic growth: the memorandum sets an inflation target of 5.5 per cent in 2024, with a 2 per cent margin.

The Single Wage Table is pointed out as an aid to improve management.

At the same time, “the revision of the wage increase formula and the freezing of wage supplements in nominal terms will allow savings to be generated,” the memorandum predicts.

Another measure provides for the replacement of “only one in three civil servants leaving the civil service, except in the education, health, justice and agriculture sectors.

Reform of the Public Probity Law, transparency regarding beneficial ownership in natural resource companies and improving the asset registers of public officials are other measures that Mozambique has pledged to carry out in order to strengthen public sector management.

The memorandum also states that the tax authority is developing a Taxpayer Portal “to allow all taxpayers to submit their tax returns and pay all taxes electronically by the end of June 2023.

There will also be new internal rules in the management of public finances and strengthening the supervision and management of companies in the state business sector.

The support programme for Mozambique will be scrutinised by the IMF board of directors at the end of June and December.

The memorandum, released by the MEF, allowed the IMF to reach a favourable decision on May 9 for the first official support programme for Mozambique (excluding pandemic and cyclones) after the suspension caused in 2016 by the hidden debts scandal.

Mozambique was thus given the ‘green light’ for the disbursement of the first tranche of US$91 million (€89.45 million) of the IMF loan of US$470 million (€462 million) until 2025.The government estimates that the financing needs for the 2022-2024 programme will be met, expecting $552 million (€553 million) in budget support from other development partners, including $500 million (€501 million) from the World Bank.



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