21 November 2012

Mozambique: Prime Minister On Tax Breaks and Renegotiation

Maputo — Mozambican Prime Minister Alberto Vaquina on Wednesday effectively denied a claim by the main opposition party, the former rebel movement Renamo, that he had ever claimed it was impossible to renegotiate contracts with the multinational companies investing in megaprojects.

At a question and answer session in the Mozambican parliament, the Assembly of the Republic, Renamo cited Vaquina’s words from October when he had said “a serious and responsible government such as ours would never alter in a hasty fashion the conditions on the basis of which it attracted the investment”.

Renamo took this as Vaquina rejecting any renegotiation. But that was not at all what the Prime Minister had meant. He pointed out that a law passed by the Assembly in 2011 specifically raises the possibility of renegotiating contracts to ensure a fairer share-out of benefits with the Mozambican state. This law would make it possible to renegotiate clauses in contracts signed before 2011.

Vaquina said that the generous fiscal incentives offered by the government a decade ago had been intended to promote Mozambique “as an attractive destination for foreign investment”.

But once that goal had been achieved, the fiscal incentives were scaled down, as the tax legislation was revised “in order to adjust it to a different context”.

Thus laws were passed in 2007, which defined the tax regimes for mining and hydrocarbons. This meant that the companies operating huge coal mines in the western province of Tete do not receive the same tax breaks that were offered to the early megaprojects such as the Mozal aluminium smelter.

Vaquina pointed out that the 2007 legislation fixes the rates for production taxes, and eliminates exemptions from taxes on profits.

Furthermore, even in the case of the investments which did enjoy large fiscal benefits, “in most cases the life span for these benefits is drawing to a close”, said Vaquina. “Once the period for the benefits has expired, the new laws begin to be applied”.

“Thus the question of the renegotiation of contracts, which is frequently brought up for discussion, is probably something the solution to which is already being implemented”, he claimed.

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