29 November 2007
Maputo — The Mozambican parliament, the Assembly of the Republic, on Thursday passed the first reading of a government bill amending the country's tax codes in order to simplify the country's tax system and make it more socially just.
Under the bill anyone who earns, in a year, up to 36 times the statutory monthly minimum wage is exempt from income tax. The previous limit was 24 times the minimum wage. The current minimum wage is 1,645 meticais a month: thus annual incomes of up to 59,220 meticais (slightly less than 2,500 US dollars) will pay no tax.
On higher incomes tax rates begin at 10 per cent and rise to 32 per cent. Only incomes in excess of 1,512,000 meticais (62,500 dollars) a year are taxed at the highest rate.
Nobody earning 100,000 meticais or less a year will be obliged to complete an annual declaration of income - which should ease the queues at tax offices in the first quarter of the year, when the declarations concerning the previous year's income must be delivered.
These changes mean that the vast majority of waged workers will pay no income tax, and the processing of income tax forms will be significantly reduced.
But for the first time, interest earned on deposit accounts, and on income from securities quoted on the Mozambican stock exchange will be taxed (at a rate of 10 per cent). This explains why, despite reducing the tax burden on most citizens, the government is confident that the new income tax code will raise more money than the old one.
Pensions too will be entirely exempt from income tax - which led deputies from the opposition Renamo-Electoral Union coalition to demand that the "reintegration subsidy", paid to senior officials (including parliamentary deputies) at the end of their term of office should also be tax free.
Finance Minister Manuel Chang, presenting the bill, rejected any comparison between a pension and a reintegration subsidy - the former was paid for life, often to people too old or too sick to work, while the latter was a lump sum merely intended to tide ministers, deputies and the like over until they found another job.
Renamo also objected to the tax on deposit accounts, and called for small deposits to be exempt. Chang replied that this might lead people to split their money into several small deposit accounts rather than one large one. Furthermore if interest on individual deposit accounts remained tax free, then companies might start putting their money in individual rather than institutional accounts.
The changes to the corporation tax code raised the limit of business revenue for inclusion in the "simplified regime" from 1.5 to 2.5 million meticais a year. Businesses this small will only pay tax at five per cent of their profits.
The normal rate of corporation tax remains 32 per cent, except in the case of agriculture and livestock companies, where the rate will be 10 per cent until the end of 2010.
Perhaps the most significant change is that income from treasury bonds loses its tax free status. The main purchasers of these bonds are the banks, and trading in treasury binds has become a significant source of profit for the commercial banks. It is this change which makes the government confident that the new corporation tax code will bring in an extra 998 million meticais in revenue for the state in 2008.
As for Value Added Tax (VAT), the new code retains exemptions for key industries. The sale of sugar, vegetable oil and soap, and the import of machinery, spare parts and raw materials for companies making these goods will remain exempt from VAT until the end of 2010.
This exemption remains necessary, Chang said, "because these industries are only competitive with these exemption, until they have modernised through the investments that are currently taking place".
But the VAT exemption on rent of buildings for industrial or commercial purposes has been abolished, with the exception of buildings in rural areas. So as from January 2008, the owners of the vast amount of rented office space in Maputo will have to pay VAT at the standard rate of 17 per cent.
The bill slashes VAT by 60 per cent on public works. such as roads, bridges and dams. This work is largely funded by donors, but the tax component comes out of the state budget. with this change "the VAT sum to be included within the state budget will be smaller and within the limits of state expenditure", said Chang.
Renamo deputies called for a reduction in the VAT rate from 17 per cent to 14 per cent (the rate in force in South Africa). They argued that, with this differential, Mozambicans would continue to drive across the border to the South African town of Nelspruit to do their shopping.
Chang pointed out that Mozambique had by no means the highest VAT rate in the SADC (Southern African Development Community) region.
Angola had a VAT rate of 30 per cent, Tanzania of 20 per cent and Zambia of 18 per cent, he said. Malawi had the same rate as Mozambique, while Zimbabwe, Namibia and Swaziland had a VAT rate of 15 per cent.
"The rates were fixed following detailed studies of the reality of each country", he said. The introduction of the SADC free trade area next year meant eliminating mst customs tariffs, but it did not imply harmonising VAT rates.
Chang also disputed claims that there were still lengthy delays in giving companies the VAT rebates owing. The period for VAT rebates had been reduced from 90 to 30 days, he said, and this was only exceeded in cases where companies' rebate claims were found to be defective and required correcting.
When the votes were taken, the Assembly unanimously approved the new corporation tax code, but the 74 Renamo deputies present abstained on the income tax and VAT codes.
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