Friday, July 12, 2024

Financial challenges: Tax concessions to multinationals affect public finances

The volume of tax benefits granted in Mozambique saw a significant increase of 82% in the period from 2017 to 2022, rising from 17.0 billion MT to 31.0 billion MT. This expansion, which has almost doubled in six years, raises questions about the impact on public finances and the need to review current legislation.
In the last six years, the country has witnessed an expressive 82% growth in tax benefits, reaching the 31.0 billion MT mark in 2022, as revealed by official data. This amount represents 11% of the state’s total revenue in the same period, indicating a considerable abdication of resources, which reached the MT 150.6 billion mark, for the purpose of encouraging investments and other expenses.
Breaking down the benefits by category, Value Added Tax (VAT) leads the way, accounting for 48% of the total, followed by Corporate Income Tax (IRPC) with 31%, and customs duties with 17%. Together, these categories account for an impressive 96% of the total benefits attributed to mega-projects, highlighting the importance of these collections in the public accounts, with VAT and IRPC contributing 23.5% and 21.9% to total state revenues, respectively.

As for the tax contribution of mega-projects, they accounted for around 202.7 billion MT, corresponding to 14% of total state revenues. However, the analysis reveals that the granting of tax benefits exceeds the tax contribution by 28.2 billion MT, raising concerns about the balance between the incentives granted and the resources collected.
With the ongoing debate about the need to mobilize resources in the domestic market, the relationship between tax benefits and domestic credit stands out, where the proportions granted to mega-projects cover more than half of the credit contracted domestically. This scenario raises questions about the sustainability of the current system, especially when tax benefits, on average, cover more than 80% of domestic financing needs.
The data indicates that the government has given up significant revenue, jeopardizing public spending, including essential investments such as building schools and hospitals. The review of the legislation on tax benefits for mega-projects, proposed in 2019, is becoming more urgent in the face of this new reality, seeking to balance incentives and responsibilities.

Entrevistas Relacionadas

Government estimates need for 4.6 billion meticais to finance budget deficit by 2027

The Mozambican government has approved the Medium-Term Fiscal Scenario...

Government creates 68.2 million dollar fund to finance MSMEs

This week, the government announced the creation of the...

Medium-Term Fiscal Scenario (2025-2027): Public spending keeps pressure on public finances

The product of ongoing budget consolidation measures indicates that...

Mozambique responds to FATF with NGO assessment: a measure against terrorist financing

The launch of the risk assessment report on Non-Profit...