26 December 2008
Maputo — The Mozambican parliament, the Assembly of the Republic, on Friday passed the second and final reading of a government bill revising the country's fiscal benefits code, despite claims by the opposition Renamo-Electoral Union coalition that it is "discriminatory".
The new code scraps many of the tax breaks that investors have enjoyed since the previous code was passed in 1993, and future mega-projects will no longer enjoy "exceptional" fiscal benefits.
Instead, benefits are concentrated on those areas of the country to which the government wishes to attract investment. The bill introduced the concept of a "Rapid Development Zone". Renamo claimed there were no criteria for defining such zones - but in fact they are defined as "geographical areas of the national territory , characterised by great potential in natural resources, but lacking infrastructure and with a low level of economic activity".
The bill passed its second reading with the 151 deputies of the ruling Frelimo Party present supporting it, while the 56 Renamo deputies abstained.
Justifying the Renamo vote, Elisa Silvestre complained that areas she favoured, such as the valley of the Save river, and Nhamatanda district in the central province of Sofala, had not been given "Rapid Development Zone" status. She regarded this as "a policy of exclusion", which was "against national unity" and would "unbalance the development of our country".
The first two Rapid Development Zones are the Zambezi Valley and the area around the northern port of Nacala. The bill allows the government to give this status to other areas when it deems appropriate. "Better to start in some regions than not at all", Finance Minister Manuel Chang told AIM.
Renamo's habitual claim of "social exclusion" normally means that the government is supposedly discriminating against areas which vote for Renamo. But in this case .Nacala, and much of the Zambezi valley, are traditionally areas which have supported Renamo.
The Assembly also passed the final reading of a bill setting up a simplified tax system for small and micro companies. This envisages that any company or individual trader or producer with a volume of business no higher than 2.5 million meticais (about 100,000 US dollars) a year may opt for the simplified tax instead of the current income, corporation and value added taxes.
The simplified tax (known as the ISPC) is charged at 125,000 meticais (5,000 US dollars) a year in towns, and 75,000 meticais a year in rural areas. Alternatively, small companies can opt to pay five per cent of their revenue, if in towns, or three per cent in the countryside.
The government believes that by eliminating most of the paperwork involved in paying taxes, and setting the tax rate low, it will attract into the tax system many informal businesses that currently pay no taxes at all.
Renamo abstained in the vote, on the grounds that 75,000 meticais was too much to expect rural small businesses to pay. It wanted a flat tax of just 24,000 meticais, as proposed by the Confederation of Mozambican Business Associations (CTA). This proposal from the CTA came as no surprise: as an employers' association, the CTA is always calling for lower taxes on businesses.
The Renamo objection was based on inability to do the maths. For Renamo ignored the provision that small businesses could pay a percentage of revenue - and three per cent of the average rural informal sector annual revenue (as established by a survey of the National Statistics Institute) is a mere 10,238 meticais (410 dollars) a year.
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