Parliament approves general VAT reduction from 17% to 16% , VAT exemption for agriculture and electrification

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Parliament approves general VAT reduction from 17% to 16% , VAT exemption for agriculture and electrification

1:08 CAT | 01 Dec 2022

File photo: Notícias

Mozambique’s Assembly of the Republic this Wednesday (30-11) approved in general a reduction in the rate of VAT from 17% to 16% on all types of goods, along with exemptions on the imports of agricultural equipment and in the area of electrification.

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 to the Value Added Tax Code (CIVA) would deprive the state of around US$80 million (€77.5 million) in revenue per year, but were necessary “to boost the recovery of the country’s economy, after successive and unprecedented internal and external shocks”.

“The package of reform measures aims to place the private sector at the centre of economic transformation”, and “promote the expansion and diversification of productive activity in Mozambique”, Tonela argued.

The changes 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, advocated more significant reductions and voted against.

In response to opposition demands, Minister Tonela said 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, Tonela continued, considered it prudent to reduce the rate gradually and responsibly, in view of the systematic budget deficits and the high contribution of VAT to state revenues.

Also in parliament on Wednesday, the three benches voted, in general and by consensus, to reduce from 32% to 10% the Corporate Income Tax (IRPC) rate 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%.

All measures still have to be approved in detail.

Source: Lusa