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The Mozambican parliament, the Assembly of the Republic, on Thursday passed the first reading of a government bill that greatly expands the list of items exempt from Value Added Tax (VAT).
Introducing the bill, the Minister of Economy and Finance, Adriano Maleiane, said the bill brings the VAT exemptions into line with the exemptions from customs duties in the new customs tariff list approved by the Assembly on Wednesday.
With the changes, which will take effect on 1January, virtually all inputs for agriculture become exempt from VAT. Basic foods have always been exempt from VAT, and the bill ends the anomaly whereby a farmer would have to pay VAT on inputs such as fertilizer, but could not reclaim that VAT because the crops he sold, such as maize, were exempt from the tax.
Now the entire chain of agricultural production is free of VAT. This includes all irrigation, drainage and spraying services.
All raw materials, intermediate goods and components for the manufacture of medicines inside Mozambique are now exempt from VAT, as are imports of certain goods for disabled people such as printers and typewriters using Braille characters.
An innovation is the removal of VAT from public passenger transport and from domestic cooking gas.
The exemptions from VAT for the sugar, soap and vegetable oil industries were supposed to expire at the end of 2015, but in fact remained in place. The government bill renews all these exemptions until the end of 2019.
The new exemptions will hit the public treasury. Maleiane estimated that the lost revenue from the exemptions next year will be 1.35 billion meticais (about 18.5 million US dollars, at current exchange rates).
But the government hopes that by reducing the cost of agriculture, the exemptions will stimulate greater production and employment, so that the money lost on the VAT exemptions, can be regained from other taxes (such as corporation tax and personal income tax).
The bill passed with 141 votes in favour, none opposed and 65 abstentions. The main opposition party, the rebel movement Renamo, abstained, largely because it wanted the government to reduce the general rate of VAT from 17 to 14 per cent.
The second opposition party, the Mozambique Democratic Movement (MDM), also wants to reduce the rate, but its deputies fully supported the exemptions and so voted with the ruling Frelimo Party to pass the bill.Source: AIM