11 August 2014

Mozambique: Withdrawal of Vat Rebates 'Catastrophic'

Maputo — The confederation of Mozambican Business Associations (CTA) has described as “catastrophic” the removal of Value Added Tax (VAT) rebates from the amended state budget for 2014 passed last week by the country's parliament, the Assembly of the Republic.

The government found that it had an additional 8.2 billion meticais (about 269 million US dollars) available for public expenditure this year, thanks to capital gains tax paid on the sale of assets by companies involved in the exploitation of Mozambique's natural resources (5.7 billion meticais) and to unspent balances from previous financial years (2.9 billion meticais).

For reasons that have not been explained, the Mozambican state has failed to pay VAT rebates owed to a large number of companies, although such rebates should be automatic. So the Finance Ministry proposed to use much of the additional expenditure on clearing the government's VAT debts.

In the original draft of the amended budget, the largest single item of additional expenditure was 3.05 billion meticais for VAT rebates.

But the Assembly rebelled, and refused to pass the VAT rebates. At the suggestion of its Plan and Budget Commission (CPO), the Assembly eliminated the rebates, and reallocated the 3.05 billion to “priority sectors” - 1.74 billion meticais to infrastructure such as roads, electricity and water supply, 405 million to new buses for urban public transport, 396 million to education, 326 million to health, and 180 million to agriculture.

This horrified the CTA. Interviewed in Monday's issue of the independent daily “O Pais”, the CTA Executive Director, Kekobad Patel, said the Assembly's decision was a disaster, especially for small and medium companies.

“VAT rebates should be paid on time”, insisted Patel. “When this does not happen, it particularly damages small and medium companies. It's not the large companies which suffer. The capacity of large companies is different from that of small ones. We want the government to solve this situation as quickly as possible”.

For Patel, the Assembly's decision to divert the money was not fair to the companies which were owed money.

“Obviously the Education Ministry has budgetary problems”, he said. “And less than a week ago we heard the Health Minister say there is only two million dollars to import medicines for the hospitals when they need 500 million. We are aware of the lack of money, but the State cannot go around handing out money without coverage. It should collect more taxes, but to do this the companies must be in a healthy condition”.

The problem of VAT rebates had been pending for years, and Patel though it made perfect sense to use the windfall capital gains tax to solve the problem.

He warned that, unless the government encouraged companies, they might drop out of the formal sector altogether, and opt to do their business in the unregulated informal sector.

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