Economists believe that the fixing of reference prices for the export of mineral resources may allow the Government to forecast revenues from their exploitation through the combination of prices with projected quantities and to determine, with a greater level of objectivity, the taxable income by combining the price of quantities declared or ascertained by the companies.
The government decided a few days ago, via a joint decree from the ministers for Economy and Finance and Mineral Resources and Energy, to establish a mechanism to set reference prices for exporting mineral resources, a measure that aims to combat under-invoicing, reduce tax evasion and increase the benefits of exploiting mineral products in the country.
To DE, Michael Sambo, economist and researcher, said that this price fixing mechanism, which came into force last Monday (19), has a direct impact on the issue of under-invoicing, as it “will minimise this practice”.
“Reference pricing, first of all, has an unequivocal impact on the issue of under-invoicing. In practice, setting the reference price means determining a priori the price to be charged by mining companies operating on the same product, avoiding significant variations. However, there may be both positive and negative variations due, for example, to the quality of the ore itself and, in some cases, it may also be around exploration costs, which, if they are very high, may determine the viability or otherwise of its exploration,” the economist explained.
Continuing, Michael Sambo stated that price fixing has a partial impact on tax evasion, as it only focuses on the price, “hence the hiring of services to determine the quantities exported, which the same communiqué mentions, complements this measure for the objective of reducing tax evasion.” Therefore, “when we talk about tax evasion, we are referring to the non-declaration of the taxable amount, that is, the quantities exported and the selling price of the product”.
Going specifically to the issue of increasing the benefits of exploiting mineral resources, the economist and researcher agreed that this aspect “is a little broader and goes far beyond collecting or not collecting tax revenue. When we talk about increased benefits from the exploitation of mineral resources we refer to how these resources will serve the Nation as a whole, the communities directly affected by the exploitations and the companies themselves. In relation to the Nation as a whole, we would have to consider the ways in which the Government will make the exploration and exportation of these resources more beneficial to society,” he said, adding that, “here, several aspects can be considered such as, for example, the creation of employment, redistribution and the connections that may or may not be created.
In his turn, Egas Daniel, economist and coordinator of the programme of the International Growth Centre (IGC) of the London School of Economics, in Mozambique, emphasised that the measure announced by the Executive aims to deal with the market distortions in this industry in terms of the prices at which mineral resources are traded domestically and the alignment with the trend of prices on the international market.
Egas Daniel began by clarifying that the provision of reference price mechanisms is known in the economy as a way to reduce market distortions known as “market failures” resulting from imperfect information and exploitation by those who have control of the value chain and more access to information. Thus, “the measure may allow a better redistribution of gains for the different players in the sector, especially those who are not aware of how the sale price is determined and end up losing out due to the lack of clarity in the mechanisms for determining that price”.
“Finally, the measure may result in a greater retention of earnings for the State, since more realistic prices may increase the State’s tax base by reducing the undervaluation or under-invoicing of mineral resources,” he noted.
Finally, economist and university lecturer, Constantino Marengula, commented that setting reference prices in the extractive industry has a positive side in that it allows the authorities to control the quantities of resources exploited, as well as the revenues from them. “This measure will ensure that companies get closer to the real sale price of those goods and, in that way, the State raises its tax base,” he concluded.