Impact of the VAT exemption on sugar, oils and soaps: Raw material costs were not fully transferred to market prices – CTA

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Impact of the VAT exemption on sugar, oils and soaps: Raw material costs were not fully transferred to market prices – CTA

3:45 CAT | 03 Oct 2022

Photo courtesy: CTA

CTA considers that the current costs of raw materials for the production of Sugar, Cooking Oil and Soaps are not being fully passed on to market prices, although prices to the final consumer are increasing.

Speaking at a Press Conference, João Mathombe, from the Association of Oil and Soap Producers (AIOPA) clarified that the VAT exemption on Sugar, Food Oil and Soaps is not having a positive effect on the price to the final consumer due to several factors, the increase in the cost of raw materials of around 371.5% for oils and 62.2% for soaps should be highlighted. Bearing in mind that, in the same period, the market prices of these products rose by 68% and 33%, respectively, it can be concluded that this rise in raw material costs was not fully passed on to market prices.

READ: Mozambique: VAT exemption lowers cost of sugar, oil, soap ‘a bit’

As a result of the monitoring work carried out by CTA on the impact of the VAT exemption and, looking at all components, it is noted that, without the VAT exemption, the average consumer price of oil would be MZM 146.25 against MZM 125 .00 in the market, with a clear benefit of MZM 21.25 per litre; in the soap component, it is noted that the average price, without exemption, would be MZM 73.71 against the current MZM 63.00 charged, a benefit estimated at MZM 10.71. The benefits are also evident in the cost of the basic food basket estimated at MZM 3,469.39 against the MZM 4,059.18 it would cost, without VAT exemption, which translates into an estimated savings of MZM 589.79 for the consumer.

“CTA, with its members, especially the Sugar, Food Oil and Soaps Industry, have been working with the Government to find medium and long-term balance solutions in order to guarantee the consolidation of the local industry and the regional and international competitiveness”, explained João Mathombe, stressing that “looking at just one component can result in a biased approach and confuse society and the Government about the real impact of the fiscal reform measures adopted to stimulate the economy and ensure the country’s social and economic well-being”.

“In our opinion, an assessment of prices, without even taking into account the cost, either of the raw material, as well as of production, can lead to unrealistic results”, he pointed out.

READ: Mozambique: CTA calls for special VAT regime for sugar, cooking oil, soap

Asked what should be done to control the rise in the prices of these products to the consumer, the Executive Director of CTA, Eduardo Sengo, explained that there are State institutions and legal mechanisms in place in the country that allow the Government to have real control over costs. of importing raw materials, as well as monitoring the real benefits of the VAT tax exemption, either by controlling the average cost of the basic food basket, as well as the prices applied to those products that benefit from the exemption. It is up to the Government, through the Ministry of Industry and Commerce, to supervise to verify the alignment of the exemption with the practice.

Likewise, the Government is requested to, in addition to monitoring the implementation of the exemption, have a firm hand on smuggling that affects the balance of the market. In this regard, CTA has already sent letters to the Prime Minister, to the Ministers of Industry and Commerce and of Economy and Finance, including the Director General of Customs.

Despite everything and with the measures taken, these industry subsectors continue to grow. Data shared by Orlando Conceição, representative of the Association of Sugar Producers of Mozambique (APAMO), indicate that, in 2021, domestic consumption of sugar (which includes household consumption and for industrial use) reached 200 thousand tons and in 2022 it is expected to reach 220 thousand tons. “Right now, the industry’s interest is to produce for local consumption, not least because the international market is highly volatile and with prices induced by subsidies in other producing countries. Normalizing this situation will take some time,” he said.

Furthermore, the socio-economic contribution remains relevant, where, for example, the sugar industry directly employs 26,500 workers and indirectly employs 5,300 workers.

Source: CTA / Press Release