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Mozambique Memorandum With IMF Foresees VAT Reform in 2023

Mozambique Memorandum With IMF Foresees VAT Reform in 2023

Mozambique’s memorandum of understanding with the International Monetary Fund (IMF) that enabled financial support for the country foresees an “ambitious reform” of VAT in 2023.

“The necessary legal changes will be made to implement the elimination of VAT exemption and zero rates,” on certain products, “in order to ensure that the reform comes into force on 01 January 2023,” the document states, while assuming that the date is only a “reference indicator.

The 59-paragraph memorandum provides for a VAT reform with broadening of the tax base and the end of some exemptions, protecting essential goods.

“To minimise the impact on the most vulnerable families, exemptions and zero rates on basic goods will be maintained,” it states.

The document was published on Wednesday on the website of the Mozambican Ministry of Economy and Finance and accessed on Friday, 16 September by Lusa.

According to the document, “broadening the VAT base will create a robust and fair revenue collection mechanism that does not depend on volatile commodities,” whilst the government, “is committed to eliminating some VAT exemptions and zero rates.

Value Added Tax (VAT), which is levied on transfers of goods, services and imports, came into force in Mozambique in 2008 and has a rate of 17 percent – however, most of the population lives and shops in the informal economy, unaware of any taxation.

The reform is a commitment made by the Mozambican government to achieve one of the objectives set out in the memorandum with the IMF: to turn a deficit into a surplus within two years.

“Taking as a starting point a primary balance after grants of -1.6 percent of GDP in 2021, the target is to achieve a primary surplus by 2024,” the document states.

In the same way, over the next four years the government will reduce the weight that public sector salaries have in the economy.

The portion of national wealth that goes to public sector salaries “is above the average for the region and peer countries,” reaching 13.8 percent of GDP in 2021, the agreed points read.

The Government is “implementing measures to better manage the cost of employment in the public sector and bring the wage bill to around 10.8% of GDP by 2026” – whether or not this will mean a loss of purchasing power will depend on other factors such as price trends and the growth of the economy: the memorandum sets a target of 5.5% inflation in 2024, with a 2% margin.

The Single Wage Scale is pointed out as an aid to improving management.

At the same time, “the revision of the wage increase formula and the freezing of wage supplements in nominal terms will allow savings to be generated,” the memorandum predicts.

Another measure provides for the replacement of “only one in three civil servants leaving the civil service, except in the education, health, justice and agriculture sectors.

Reform of the Public Probity Law, transparency regarding beneficial owners in natural resource companies and improving the asset registers of public officials are other measures that Mozambique has pledged to carry out in order to strengthen public management.

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The memorandum also states that the Tax Authority is developing a Taxpayer Portal “to allow all taxpayers to submit their tax returns and pay all taxes electronically by the end of June 2023.

There will also be new internal rules in the management of public finances and strengthening the supervision and management of companies in the state business sector.

The programme of support for Mozambique will be scrutinised by the IMF Board of Directors at the end of June and December.

The memorandum, released by the MEF, allowed the IMF to reach a favourable decision on May 9 for the first official support programme for Mozambique (excluding pandemic and cyclones) after the suspension caused in 2016 by the hidden debts scandal.

Mozambique was thus given the ‘green light’ for the disbursement of the first tranche of $91 million of the IMF loan, worth $470 million until 2025.

The government estimates that funding needs for the 2022-2024 programme will be met, expecting US$552 million in budget support from other development partners, including US$500 million from the World Bank.

Translated with www.DeepL.com/Translator (free version)

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