Mozambique: Additional tax on rental income, broadening of VAT base promised to the IMF

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Mozambique: Additional tax on rental income, broadening of VAT base promised to the IMF

4:19 CAT | 26 Jan 2024

File photo: Lusa

The Mozambican government has pledged to the International Monetary Fund (IMF) that it will broaden the VAT base and impose an “additional tax” on rental income from personal property, according to a document to which Lusa had access this Friday.

“We are advancing with the core fiscal reforms needed to foster growth and achieve our debt reduction objectives,” reads a letter sent to the IMF by Minister of Economy and Finance, Max Tonela, and Bank of Mozambique governor Rogério Zandamela.

Addressed to IMF managing director Kristalina Georgieva and dated December 19th, the letter formalizes the request for approval of the third evaluation of the IMF assistance program to Mozambique, and the release of the third tranche of support.

“With respect to VAT reforms, we are fully implementing the elimination of exemptions and zero-ratings identified through the 2022 prior action by end-2023,” the letter adds, also mentioning the “domestic revenue mobilization effort”, which includes “broadening the VAT base”, as well as an “additional tax on rental income from personal property”.

The government also commits to ” aligning the reference price of the extractive industry to international prices in line with best practice, supported by tax administration measures”, noting that “non-tax policy measures include increasing the concession rate on profit-making SOEs (state-owned enterprise)”.

The government also emphasizes that last April’s decision on the resumption of the automatic fuel price mechanism for diesel and gasoline prices “helped in reducing market frictions and fiscal liability”.

On January 8th, the IMF approved the third evaluation of the assistance plan for Mozambique, allowing the “immediate disbursement” of a new tranche of US$60.7 million (€55.4 million) for budget support.

In a previously released statement, the IMF said that the executive board “completed the third assessment” of the implementation of the 36-month Extended Credit Facility (ECF) program in Mozambique. With this third tranche, total disbursements to Mozambique under this ECF amount to around US$273 million (€249.2 million).

“Program performance has been satisfactory. Five of eight structural benchmarks (SBs) were met as of end-December 2023, and three of four quantitative performance criteria (QPCs) were observed,” says the IMF, regarding the evaluation of the ECF agreed with Mozambique.

“Based on remedial actions adopted by the authorities, the Executive Board approved a waiver of non-observance of the continuous performance criterion on non-accumulation of new public and publicly guaranteed external payment arrears which was missed due to delays in debt service repayment,” the IMF further noted.

This ECF program was approved in May 2022 and provides Mozambique with finance totalling US$456 million dollars (€416.2 million).

Source: Lusa