10 December 2012

Mozambique: Assembly Alters Tax Codes

Maputo — The Mozambican parliament, the Assembly of the Republic, on Monday passed government bills altering the tax codes for personal income tax and corporation tax, which the Finance Ministry claims will both simplify procedures and raise more revenue.

A bill amending the personal income tax code will bring the government an extra 424.7 million meticais (14.2 million US dollars) next year, but without altering the tax rates. The income tax bands continue to range from 10 to 32 per cent.

According to Finance Minister Manuel Chang, the increase in revenue will come entirely from those in the upper income brackets, who will no longer be able to reduce their tax liabilities by including their salaries with other sources of income when filling in their yearly tax returns.

As from 2013, the tax on salaries will be calculated separately from other sources of income. Chang told AIM he was confident this would raise significant extra revenue for the treasury, while the vast majority of waged workers would pay no income tax at all.

The bill raises the threshold at which income tax starts to be paid from 100,000 to 225,000 meticais a year. So anyone earning less than 18,750 meticais (625 US dollars) a month will pay no income tax at all.

The tax calculations will no longer take marital status into account. If both husband and wife are earning they will now submit separate tax returns. Chang said the effect of this will be that most households will pay less tax.

But the main opposition party, the former rebel movement Renamo, misread the bill and claimed that it would deal “a severe blow to the already weakened financial resources of the poorest taxpayers”.

Renamo based this claim on a clause that raises from 100 to 500 meticais the “minimum limit” for income tax reimbursements. That is, after a taxpayer’s tax return has been analysed, and it turns out that over the year he has overpaid the state by 500 meticais or less, he will not receive that money back.

Likewise, if it turns out that he owes the state 500 meticais or less, he will not have to pay it.

Renamo claimed this was a “400 per cent tax increase”. Chang explained that chasing such small sums was not worth the time and effort of either the taxpayer or the state. Few people would think it worth their while to travel to a tax office, which might be a considerable distance from their home, to claim a refund of less than 500 meticais.

The poor could not possibly be affected, since they pay no income tax at all. The issue of refunds only affects people earning over 225,000 meticais a year, and they were just as likely to benefit as to suffer from the change.

A second bill, altering the tax regime for companies, formalizes capital gains tax on transactions outside Mozambique which involve Mozambican assets. This had previously been dealt with on a case by case basis

Thus earlier this year, when Cove Energy, one of the companies involved in exploring for natural gas, off the northern Mozambican coast, was acquired by Thailand’s PTT Exploration & Production for 1.9 billion US dollars, the Mozambican authorities insisted that the deal could only go ahead on the payment of a 12.8 per cent capital gains tax.

Cove held an 8.5 per cent stake in the Rovuma Basin Offshore Exploration Area, a stake which had risen dramatically in value with the discovery of over 50 trillion cubic feet of natural gas in that block.

A further change is that the earnings of commercial banks from the interest rates they charge in inter-bank transactions will be taxed for the first time. The withholding tax on these interest payments, and on interest on treasury bonds and debt titles quoted on the Mozambique Stock Exchange will be 20 per cent.

The bill also closes a loophole whereby tax on profits can be evaded through using all the profits in a particular year to repay shareholder loans. Interest on those loans, above the standard 12 month MAIBOR (Maputo Inter-Bank Offered Rate), can no longer be deducted from profits for tax purposes.

The changes in company taxation, Chang said, will lead to an estimated increase in revenue of 171 million meticais in 2013.

The two bills were passed by deputies from the majority Frelimo Party and from the Mozambique Democratic Movement (MDM), while the Renamo parliamentary group voted against.

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