11 December 2012

Mozambique: Amendments to Tax Codes Passed

Maputo — The Mozambican parliament, the Assembly of the Republic, on Tuesday passed the second and final reading of bills altering the codes on personal income tax, corporation tax, and the taxes on alcohol and tobacco.

Under the amended income tax code, the vast majority of waged workers will pay no tax at all. The level of wage exempted from income tax is raised from 100,000 meticais (about 3,330 US dollars) to 225,000 meticais a year.

The bill also treats wages separately from other forms of income. They can no longer be added together for purposes of calculating income tax, and the government claims this means that the rich will pay more tax.

The main change in company tax rules is that the bill formalizes capital gains tax on transactions outside Mozambique which involve Mozambican assets (such as the deal 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 for 1.9 billion US dollars). Rather than being dealt with on a case by case basis, these acquisitions are now covered by the corporation tax code.

As for alcoholic drinks, the bill raises the taxes on wine and spirits, while leaving the tax on beer untouched.

The main target is locally manufactured spirits, consisting of ethyl alcohol, diluted with water, to which various essences, aromas, and concentrates are added. They are then sold very cheaply, under misleading labels as if they really were gin, rum or whisky.

They are made by legally registered companies, but the tax on them had been derisory until now, at just 18 meticais per litre. The bill more than doubles this tax to 40 meticais per litre (and not 150 meticais a litre, as erroneously reported on Monday).

But it may be doubted if the increase will deter fans of cheap spirits. One such drink, known as “Temptation”, sells at 18 meticais for a bottle of 250 millilitres. Finance Ministry officials told AIM that, after the tax change, the retail price for this bottle should be 25-26 meticais. This is still considerably cheaper than the recommended price of 35 meticais for a 350 millilitre bottle of beer.

The Finance Ministry argues that charging these drinks the same tax rate as imposed on imported spirits would risk driving legitimate Mozambican companies out of business. But the tax rate on “Temptation” and similar drinks will rise steadily to 60 meticais a litre in 2014 and 90 meticais a litre in 2015.

The tax on genuine whiskies and other imported spirits rises from the current 120 meticais a litre to 150 meticais in 2013, 160 meticais in 2014 and 175 meticais in 2015.

All three tax bills passed by 168 votes to 34, with deputies from the ruling Frelimo Party and the Mozambique Democratic Movement (MDM) voting in favour, and those from the former rebel movement Renamo voting against.

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