IMF says mega-project tax benefits reduce social spending options

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IMF says mega-project tax benefits reduce social spending options

9:22 CAT | 08 Feb 2016

Jornal Notícias (File)

In a report recently published in Washington, the International Monetary Fund (IMF) has said that that the tax benefits granted to large projects in Mozambique have a high cost and reduce the fiscal leeway for other social spending, reports daily newspaper Notícias.

The IMF notes that while tax incomes fell in 2014 due to a reduction in the number of investment projects, the benefits still accounted for 3.3 percent of the gross domestic product, with an increasing number of value-added tax exemptions for large projects.

“A variety of tax benefits is offered in various sectors to attract investment. This type of incentives includes temporary exemptions, tax rate reductions, tax credits for investments, accelerated depreciation and exemptions and deductions on inflated expenses,” the IMF points out.

The IMF report notes that public spending in Mozambique, as a percentage of GDP is higher than in most countries in the region including South Africa, which has the highest income per capita of the Southern African Development Community countries.

However, the same source points out that the Mozambican economy is comparatively small (only 5 per cent of the size of South Africa’s) and public spending per capita is only US$283 per annum, one of the lowest in sub-Saharan Africa.

“In addition, the growth of public spending is also under pressure from wages, goods and services and capital expenditure financed internally, with insufficient controls to ensure the proper use of resources,” the IMF says.

To increase the efficiency of public expenditure and its redistribution potential and ensure the sustainability of public finances, the IMF suggests that government spending should be better aligned with robust medium-term fiscal scenario The IMF also suggests that costly fuel subsidies should be eliminated, taking advantage of the fall in oil prices.

“Such subsidies are expensive and are highly regressive. In 2014, they amounted to 1.4 percent of GDP and less than 2 percent of these subsidies benefited the lower segment of the population,” the report reveals.

Source: Club Of Mozambique