Mozambique held its seventh multiparty general elections on October 9, 2024, to elect the President, members of the National Assembly, provincial governors, and members of the Provincial Assemblies.
The official results, announced on December 23, 2024, confirming the victory of the Frelimo party and its presidential candidate, were widely contested by the opposition and both national and international observers. This sparked a wave of protests that resulted in looting and the destruction of various public and private assets.
The post-election protests caused widespread damage to both public and private property, creating long-lasting economic and social consequences.
Disputing election results is not new in Mozambique, as it has occurred since the first multiparty elections in 1994. However, the protests following the 2024 elections had an unprecedented impact, with social, cultural, political, and economic repercussions that may last for decades.
In a context of high uncertainty, as experienced after the 2024 elections, it is imperative that the tax system evolve to respond swiftly and sensitively to the realities of the business environment. The recorded impacts, including material and human losses, require a thorough reflection on the adequacy of existing tax regulations in the face of extraordinary events.
Beyond temporary measures, the moment calls for the construction of a more resilient fiscal framework that recognizes the importance of predictability, tax justice, and the protection of national productive capacity. Experience from other regions shows that, in times of crisis, fiscal flexibility can catalyze economic recovery if accompanied by rigor, transparency, and institutional dialogue.
It is therefore essential that policymakers, tax authorities, and the private sector work together to design balanced solutions that not only mitigate the immediate effects of the crisis but also strengthen confidence in the tax system. Such measures could include extending filing deadlines, suspending advance payments, relaxing the application of fines and interest, and, importantly, recognizing costs resulting from unforeseen events to preserve productive capacity and prevent business disruptions.
Fiscal Impacts on Businesses
The economy of any country organizes the production, distribution, and consumption of goods and services, relying on interactions between individuals, companies, government, and the rest of the world. Currency circulation is essential for a healthy economy, facilitating trade, stimulating production and consumption, ensuring liquidity, enabling the banking system, and controlling inflation.
The violent protests following the announcement of the October 2024 election results disrupted currency circulation and the normal functioning of public and private institutions, severely affecting businesses, many of which had to halt operations for extended periods.
This article focuses on the tax implications arising from vandalism of equipment and infrastructure, as well as theft and destruction of inventory.
Businesses faced significant fiscal challenges due to vandalism, theft, and operational disruptions caused by the protests.
Recording Non-Accepted Losses for Tax Purposes
Current tax legislation, under Article 22 of the Corporate Income Tax Code (IRPC), considers costs or losses that are indispensable for generating taxable income or maintaining productive assets. Tax-accepted losses include provisions and impairments, especially for inventory devaluation within observed limits. However, it remains unclear whether losses from theft or destruction of inventory during protests can be recognized as tax-deductible impairments, as legislation is silent on this matter.
Businesses often submit detailed requests with supporting evidence, such as independent auditor reports, to justify these losses. Acceptance is discretionary, posing legal uncertainty for taxpayers. Similarly, impairments for tangible assets like vandalized equipment or infrastructure lack direct guidance, creating the risk that these costs may not be recognized unless documented according to accounting standards (NCRF 18).
Provisions for doubtful debts are also limited under Articles 29 and 30 of the IRPC, imposing strict percentage limits and requiring proof of bankruptcy or insolvency for tax deductibility. Many businesses saw receivables increase as clients could not meet obligations, forcing companies to set up economic provisions. Yet, tax authorities may not fully accept these provisions due to formal requirements.
Current tax rules provide limited recognition of extraordinary losses, highlighting the need for legislative updates to protect businesses during unforeseen crises.
Ensuring that financial statements reflect a true and fair view and minimizing the impact of unpredictable events is crucial. These situations are not unique to 2024 but have occurred over the years on a smaller scale. Updating tax legislation to allow higher acceptance limits for provisions and impairments caused by unforeseeable events would align fiscal practice with economic reality, based on observable facts with macroeconomic impact.
