A tax specialist argues that the country must accelerate digitalization and strengthen transparency in natural gas taxation. He also warns of failures in revenue reconciliation and the absence of technical justification in setting rates and royalties.
The discovery and development of hydrocarbon resources have dominated public discussion in the country for several years. The potential tax revenues from natural gas have been presented as a historic opportunity, capable of financing infrastructure, public services, and social programmes. But transforming energy potential into real wealth requires complex technical, legal and political decisions and, above all, a high degree of transparency and efficiency in the collection and management of these revenues.
Mauro Daúd, tax partner at EY and an expert in fiscal policy who has followed the sector for more than 18 years, questions certain transparency gaps and highlights priority measures to ensure that the Government can materialise the benefits of gas for the population.
The Fiscal Framework: Corporate Income Tax, Royalties and Production Sharing
“Our tax system includes several instruments or mechanisms for taxing this capital-intensive industry,” explains Mauro Daúd, adding that, formally, companies operating in Mozambique are taxed under Corporate Income Tax (IRPC) at the nominal rate of 32%. “But in practice, IRPC will only generate revenue once the company records accounting profits, and in gas projects this may take many years,” he noted. According to the specialist, to ensure revenues from the start of exploitation, the Government uses royalties, known in the country as Petroleum Production Tax, levied on gross production. “Royalties function as an immediate revenue-collection mechanism. Even before companies generate profit, the country already starts receiving income. The rate can go up to 6% of production and is therefore an important revenue source that mitigates the long investment-recovery period faced by multinationals.”
At the same time, production-sharing contracts ensure that the State receives a share of production, in kind or in value, regardless of the full recovery of invested capital. “Production sharing is a hybrid instrument: it allows the country to earn periodic dividends without waiting for the project to be fully amortised,” the tax expert points out, adding that “it is not an alternative to IRPC; it is a complementary mechanism. The goal is to prevent the country from relying on a single system and to enable revenue flows from the initial phases.” He notes that under production sharing, output is divided between the company and the State after operating costs are recovered. “Generally, the State receives a portion of the production, while the company recovers its investments and costs. This model aims to encourage exploration and ensure State participation in profits, aligning the interests of both parties,” he stresses.
“Often, rates are set without the supporting studies being known. We ask ourselves: what was the technical criterion that led to choosing 6% and not another value?” questions the tax expert.
Technical Justifications Behind Changes to Fiscal Regulations
Mauro says one of the most frequent criticisms from experts concerns the lack of technical justification. At times, cost–benefit analyses and the impact of changes to fiscal regulations and rates prove counterproductive to the intended fiscal policy goals. “As mentioned, for countries like ours, applying royalties—such as the Petroleum Production Tax—seems an appropriate Government measure. However, any consideration of adjusting these rates up or down must be backed by assurances that governmental goals and programmes can be met with reasonable safety and certainty. There is a need to periodically evaluate or amend fiscal regulations and to publish, regularly, guidelines and instructions on their implementation, as required by our tax legal framework,” he explained.
VAT, Exports and Adjustment Mechanisms
One issue requiring special attention is indirect taxation. “Regarding VAT, the export of oil and gas is generally subject to a zero rate,” the expert explains. However, mechanisms for adjustment and special domestic regimes often become problematic. “When companies operate domestically or when supplies are linked to the local value chain, doubts arise on deductibility and VAT treatment. We need clear rules,” he argues. Daúd recalls that in other sectors, VAT rule changes were implemented without an exhaustive public study, complicating business operations and reducing predictability. “The lack of technical basis for special regimes generates uncertainty and disputes. The Government should publish the measures and the studies that support them,” he states.
ENH’s Participation and the State’s Financing Challenge
The National Hydrocarbon Company (ENH) plays a central role as the State’s representative in the projects. “Often, ENH lacks sufficient capital to participate proportionally in investments, leading to mechanisms in which its participation is financed by concessionaires,” says the specialist, noting that such financing entails reimbursement rules and limits to prevent the State from receiving too little revenue upfront.
“The objective must be to protect the country’s interests, allowing it to benefit from production without losing oversight capacity or current revenues. Clear limits must be set on the amounts that can be financed and the conditions for reimbursement,” he notes.
Transparency, Digitalization and Data Reconciliation
“The first priority is digitalization,” stresses the expert. Daúd notes that some countries in the region have moved quickly in modernising their fiscal systems by integrating tools such as SAF-T (Standard Audit File for Tax Purposes) and other platforms that facilitate declaration, monitoring, and revenue reconciliation. “Angola, for example, has made remarkable progress in this area. Interestingly, they once asked us to share experiences, and today they are ahead in certain aspects,” he says. According to the specialist, digitalization improves not only collection efficiency but also transparency: “Having a unified system that reconciles payments at provincial and central levels, cross-checks data from different entities, and issues public reports substantially reduces the discrepancies we see today.”
Daúd warns: “We have participated in tax-reconciliation initiatives, such as the Extractive Industry Transparency Initiative (EITI) in Mozambique, and identified cases where companies declared paying more taxes while the Tax Authority reported receiving less, or vice versa—something unacceptable in a modern system. Recently, discrepancies in EITI reports have been minimal, which strengthens the country’s transparency and reputation.”
Legal Certainty and Stability Clauses
In concession contracts, fiscal stability clauses are often cited as essential for attracting foreign investment. “For international investors, rule predictability is critical. Stability clauses create confidence and reduce the risk of arbitration or capital flight,” the expert explains.
However, he notes that stability must not equate to immunity from reform. “Legislation must be clear and aligned with national objectives. We may draw from international best practices, but our laws must be tailored to Mozambique and responsive to our priorities,” he says.
Daúd further recommends strengthening audit capacity, especially in sensitive areas like cost-deduction and transfer pricing. “With the right technology, it is now possible to cross-check data and identify discrepancies in real time. The country must invest in this capacity to reduce disputes and ensure fair law enforcement,” he argues.
Beyond direct fiscal revenue, the tax expert highlights the importance of structuring support mechanisms for local communities in an auditable and transparent manner. “If concessionaires channel donations or investments through auditable programmes with clear rules and independent oversight, this reduces conflict risks and enhances social acceptance,” he argues. “It is not just about giving money. It is about developing local projects, investing in infrastructure, education and health, and training local workers to reduce external dependency,” he emphasises.
Lessons of Success and Cautionary Cases
Looking at countries with similar profiles, Daúd says there are both success stories and mistakes to avoid. “Some African countries advanced quickly with electronic platforms and transparency mechanisms. Others adopted excessively rigid fiscal stability clauses that later complicated reforms,” he notes. “Mozambique has the opportunity to learn from these experiences. We need transparent legislation and governance mechanisms that enable oversight and the sharing of results with the population,” he adds.
The specialist also warns against the risk of “Dutch disease”: “If the country does not structure its policies well, it may become excessively dependent on one sector and neglect other economic activities. Gas revenues must be managed in ways that diversify the economy and promote sustainable development.”
A practical challenge highlighted by the interviewee is the reconciliation between what is declared and what is actually received, both provincially and centrally. “If there are distinct registration and collection mechanisms at different levels without an automatic cross-checking system, discrepancies arise that are difficult to resolve. We need a unified system that allows immediate reconciliation,” he stresses.
“Volatile revenues cannot be treated as recurring. It is essential that the Government establishes management mechanisms to prevent destabilizing economic cycles.”
More Human Resources and Rigorous Revenue Management
Daúd underscores that strengthening the technical capacity of the Tax Authority requires not only technology but also highly trained human resources. “Having digital tools is essential, but we also need inspectors, auditors and analysts with technical knowledge of the sector. Without this human capacity, the systems will be under-used,” he notes.
On the budgetary side, authorities must plan revenue prudently. “Volatile and/or unpredictable revenues, such as capital gains, cannot be treated as recurring income. It is essential for the Government to structure revenue-management mechanisms—sovereign funds, savings rules, investment priorities—to prevent destabilising economic cycles,” he states.
Concrete Steps Suggested by the Expert
Daúd summarises key priority actions: “First, accelerate digitalization of the Tax Authority. Second, publish the technical basis for setting rates and royalties. Third, strengthen audit capacity and reconciliation mechanisms. Fourth, structure community-support programmes with clear rules and independent audits. And finally, ensure that legislation meets national objectives without losing competitiveness.”
The specialist outlines a path forward: “Publish a sequential digitalization plan with deadlines; prepare and publish technical studies supporting royalty fixes; create a public registry of reference prices; strengthen ENH with clear financing and reimbursement rules; structure auditable social programmes; and enhance audit capacity through proper technical training.”
Text: Nário Sixpene • Photography: Mariano Silva
