A country rich in potential, yet chronically poor in revenue. And the pressing question is simple: why does the Mozambican state remain unable to collect what is rightfully due to it? Amid bustling ports and thriving markets, millions in taxes evaporate every year, slipping through the cracks of an inefficient, porous, and at times complicit system. This reality, often ignored in major economic debates, helps explain the State Budget’s recurring deficits and the fragility of public accounts. How can this concern be resolved?
While customs record ever-growing volumes of imports and exports, the inconvenient truth is that much of the taxes due from foreign trade never reach state coffers. Under-invoicing, smuggling, poorly managed exemptions, and corruption continue to undermine collection capacity at the borders, making customs a battlefield between legality and entrenched interests.
Domestically, the picture is no brighter. Taxes such as VAT (on consumption), IRPC (corporate income tax), and IRPS (personal income tax) continue to show low rates of voluntary compliance, with many businesses operating in the informal sector or exploiting loopholes to drastically reduce their tax burden. Agriculture and the informal sector, which employ the majority of the population, remain outside the tax net, while sectors such as transport, services, and urban commerce systematically escape effective supervision.
This structural weakness compromises the State’s ability to finance essential services and public investment. In 2025, Mozambique is expected to face a budget deficit of over 8% of GDP (126.8 billion meticais), dependent on external financing and cuts in vital areas. The fiscal collection crisis is not just a technical issue: it is a symptom of governance failure, taxpayers’ lack of trust, and the State’s difficulty in being present, effective, and fair. The urgency of a comprehensive fiscal reform, one that goes beyond the mere creation of new taxes and tackles evasion, inefficiency, and inequality in the current system, is more than evident. What is really happening, and how should it be resolved?
E&M spoke to Mauro Daúd, manager, tax economist, and partner at Ernst & Young (EY), one of the entities advising the State on tax matters. From the introduction of income taxes (2002) to the new General Accounting Plan (PGC-NIRF), the consultancy has provided opinions and technical proposals to the Ministry of Finance and the Tax Authority. Recently, it collaborated with the US Millennium Challenge Account to propose tax reforms in the agricultural sector, penalized by the interplay between formal and informal operators.
From A to Z, Mauro Daúd helps map out and understand what is going wrong in Mozambique’s tax sector. And he insists: a serious reform is necessary.
The urgency of redefining fiscal policy
For Daúd, everything starts with a key question: what do we want to achieve with fiscal policy in Mozambique? Revenue collection or expenditure control are consequences of a deeper political and strategic decision. Fiscal policy, he stresses, is not limited to taxes. It must be understood as part of budgetary policy and as a tool for economic development.
Defining this policy requires a clear choice between an expansionary or more restrictive fiscal model. This means deciding, for example, whether the country wants to stimulate or curb consumption and investment. However, in Mozambique, tax legislation has remained virtually unchanged for decades, failing to keep pace with economic cycles and national needs. One direct effect of fiscal policy on people’s lives is its impact on disposable income. Reducing income tax, for instance, allows citizens to spend more and boost the economy. Yet, unlike in other countries where the State Budget is followed closely by everyone anticipating its fiscal impact, in Mozambique this effect is rarely felt. Legislation is rigid, and piecemeal changes fail to achieve the intended goals.
VAT dysfunctions: distortions and waste
One of the most illustrative cases of incoherence in Mozambique’s fiscal policy lies in VAT treatment, particularly in the oil, gas, and mining sectors. Since its introduction in 1998, various exemptions have been granted to certain segments, such as exploration and research phases, to attract investment. However, these measures distorted how the VAT value chain functions.
The so-called “regularization notes,” used as proof of exemption instead of actual payments, ended up stalling real cash circulation in the economy. “In practice, we are trading money for paper, and this kills the economy,” Daúd summarizes. He illustrates this with a simple example: a 100-metical note circulating rapidly among several economic agents generates wealth, even if no one keeps it in the end. If instead the transaction is done with a document lacking cash value, the cycle breaks.
The problem is magnified when considering large investments, such as natural gas projects, worth tens of billions of dollars. With a VAT rate of 16%, just one of these companies could theoretically generate over 3 billion dollars in tax. If this does not translate into real money circulating, the direct economic impact for the country disappears.
Another critical point is the State’s inability to refund VAT owed to companies in due time. The problem is partly financial, but mainly administrative. For Daúd, it is unacceptable to alter the functioning of structural taxes such as VAT, IRPS, or IRPC just to bypass management failures. The solution lies in modernizing the State’s administrative systems and making the tax machine more efficient, rather than distorting the taxes themselves.
Diversity, overlap, and distortions in taxation
Another critical component often overlooked in technical debates is the perceived fairness of the tax system. According to Daúd, one of the central roles of the system should be to promote social justice. “It’s not just about complying with the law. Taxpayers must feel that their taxes are well applied,” he says.
Yet, this sense of fairness is absent for many taxpayers, especially in the private sector, who believe that despite the nominal tax rate being between 30% and 32%, many additional charges make the real tax burden heavier. “We have national taxes, then municipal taxes, then sector-specific taxes. Often, they all apply to the same taxpayer.” The result is frustration and evasion, which must be tackled through clearer fiscal policy and greater transparency in public spending.
Daúd warns, however, that the true obstacle to tax justice in Mozambique is not informality itself, but the lack of information on the economic activities that sustain it. A recent example is the debate over taxing electronic transactions. “We’re talking about 3%, but on what base?” he asks. Without reliable data on informal flows, any attempt at taxation becomes speculative.
The strategic role of digitalization
On the Government’s announced digitalization plans, Daúd acknowledges their potential but warns against uncritical enthusiasm. “We cannot digitalize just because everyone else is doing it. We need a clear vision of what to digitalize, for what purpose, and with what objectives,” he argues. For him, the goals must be anchored in efficiency gains, greater transparency, and combating corruption.
In this regard, he highlights the introduction of the SAF-T system, a standardized digital file created by the OECD and already successfully implemented in countries such as Portugal, Angola, and Cape Verde. EY supported its implementation in Mozambique through the conceptual design of the system, delivered to the Tax Authority under a Millennium Challenge Account-funded project. “Digitalization will help with information gathering and broadening the tax base. Broadening doesn’t mean everyone starts paying taxes. It means understanding better who can and should contribute.”
The absence of concrete data, particularly in sectors like agriculture, is another challenge. “We announce a GDP, but across the agricultural chain we lack information. And without data, good public policies are impossible,” he stated.
Simplified systems: “Those who can, pay more”
This is a model in which those with greater administrative and financial capacity take on greater tax responsibilities. The Simplified Tax for Small Taxpayers (ISPC), for example, already exempts those with business volumes up to 600,000 meticais, equivalent to 36 higher minimum wages (in the banking and insurance sectors). Yet, inconsistencies between laws and practices often nullify this benefit.
“For instance, if a woman sells fish to a hotel but has no documents, the company cannot deduct this cost. So, it either chooses not to buy from her or enters the same scheme.” In other words, poorly calibrated legislation creates disincentives for formalization and distorts business relations. “If the law already says it doesn’t want to tax up to 600,000, why are there withholding taxes on transactions of 100 meticais?” he questions.
The solution is to simplify and harmonize the entire tax structure: national, municipal, and sector-specific taxes must be logically aligned. “We need to streamline, simplify, and allow small producers to grow until they have organizational capacity,” he suggested.
Self-invoicing and inclusion: inspiring experiences
One of the solutions considered in the ongoing tax reform is self-invoicing. In other words, “those with administrative capacity and organized accounting can issue an invoice on behalf of those who cannot.” This model is already used in other regions and drastically lowers barriers to entering the formal sector. “The idea is for the small producer to focus on production while the larger company assumes the corresponding tax burden.”
Moreover, international experience shows that late reformers can learn from pioneers’ mistakes without reinventing the wheel. Thus, Mozambique must “move fast,” cut red tape, and adapt its fiscal policies quickly to the real context of its economy and society.
Text: Celso Chambisso • Photography: Istockphoto
