22 November 2012

Mozambique: No Major Tax Breaks for Mining Companies

Maputo — Mining companies are not entitled to any exemptions from corporation tax, or reductions in the rate paid, Mozambique’s Minister of Planning and Development, Aiuba Cuereneia, told the country’s parliament, the Assembly of the Republic, on Thursday.

He was answering a question from opposition deputies about tax breaks for megaprojects. The parliamentary group of the main opposition party, the former rebel movement Renamo had claimed that Prime Minister Alberto Vaquina and the Minister of Mineral Resources, Esperanca Bias, had contradicted themselves on this issue last month.

Asked about mining contracts, tax breaks and the possibility of renegotiating contracts, Bias had said “the government is working in obedience with what is established in the legislation”. In the same session Vaquina had said “the contracts were signed under particular conditions, and a responsible and serious government such as ours would never hastily alter the conditions on the basis of which the investment was attracted.

Cuereneia could not see any contradiction between these two statements. The legal position was that, under the 2007 law in mining taxes, the companies must pay the full rate of 32 per cent Corporation Tax on their profits. The only fiscal incentives envisaged under this law are exemptions from paying customs duties on specialized mining equipment. This exemption last for five years, which is the estimated time for exploration and development.

However, any fiscal benefits granted prior to the 2007 law remain in effect, and expire when the period for which they were granted ends. “Thus there is a legal provision that maintains the acquired rights, and these rights end in accordance with the period stated”, said Cuereneia.

Vaquina returned to this issue in his closing speech, stressing that it is in the government’s interest to generate more tax revenue. Adjustments had thus been made to the legislation so that companies would pay more. “The new law removes the fiscal incentives envisaged in the old law”, he said.

But in any possible renegotiation of contracts “we must look at the legal framework and the possible impact of the measure on Mozambique’s image”.

This was what he had in mind when he said that a responsible government could not act in haste to change contractual conditions.

Vaquina also rejected a claim by the parliamentary group of the Mozambique Democratic Movement (MDM) that the government has ordered the police to harass opposition political parties. During the debate, MDM spokesperson Jose Manuel de Sousa had stated that the only places in the country where free political activity is possible are Maputo, Beira and Quelimane (the latter two cities are the only municipalities run by the MDM).

Vaquina replied that there are no instructions from the government ordering the police to hinder the work of political parties. “We say that the central and local governments should respect the law and ensure that others respect it”, he said. “The job of the police is to ensure public order and to fight crime. Neither the central nor the local governments are responsible for acts practiced outside the law”.

But when it came to harassment, the MDM did not have clean hands. The MDM complains repeatedly about the police and local authorities tearing down its flags – but Vaquina recalled that, in 2009, Beira City Council, under mayor Daviz Simango, founder of the MDM, banned the public display of Frelimo and Renamo flags. Vaquina said he was well aware of this incident, since he was governor of Sofala province at the time and was living in Beira.

This ban had not been ordered by the central or the provincial government, he said, just as the government had not instructed the MDM to remove speaking rights from one of its deputies, Ismael Mussa. (Mussa fell out with the leader of the MDM parliamentary group, Lutero Simango, and was subsequently told he could not speak in the Assembly plenary).

“Not everything that happens in society is the fault of the government”, remarked Vaquina.

Similarly, the government could not be expected to bear the full weight of the fight against poverty. The government contributed with major investments (in health, education, or infrastructure), but individuals and households also had to play their part in improving their own lives.

“It is not the government that takes the children to school, or takes pregnant women to hospital”, he said.

“The government is doing its part, and we want everyone else to do their part”, he declared. “If we don’t do it, nobody else will”.

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