The Mozambican parliament approved the reduction of VAT from 17% to 16% for all goods and exempted agricultural equipment and electrification imports.
The measures are part of the economic acceleration package announced in August by President Filipe Nyusi.
The Minister of Economy and Finance, Max Tonela, said in parliament that the changes made to the Value Added Tax Code (CIVA) will remove revenue from the State worth around US$80 million (77.5 million euros) per year, but are necessary, because “they aim to boost the recovery of the country’s economy, after successive internal and external shocks, without precedent”.
“The package of reform measures aims to place the private sector at the center of economic transformation” and “promote the expansion and diversification of productive activity in Mozambique”, argued Tonela.
The changes to the VAT were approved with votes in favour of the Mozambique Liberation Front (Frelimo), the ruling party which holds a parliamentary majority.
The Mozambican National Resistance (Renamo), the main opposition party, and the Mozambican Democratic Movement (MDM), the third party, voted against, as they advocate more significant reductions.
In response to the opposition’s demand, the Minister of Economy and Finance underlined that “a drastic reduction in the [VAT] rate would also result in a significant decrease in tax revenue, which would compromise the government’s ability to carry out essential development programs, aimed at promoting social well-being”.
The Government, continued Max Tonela, considers it prudent that the reduction of the rate to desirable levels be carried out gradually and responsibly, in view of the systematic budget deficits and the high degree of contribution of the tax to global revenues.
Still in the parliamentary session on Wednesday, the three benches voted, in general and by consensus, to reduce from 32% to 10% the rate of the Corporate Income Tax (IRPC) in agriculture, aquaculture and urban transportation.
The Assembly of the Republic also approved the reduction of the withholding tax levied on the income of non-resident entities in Mozambique, which provide services to national agricultural companies, from 20% to 10%.