• The cost of tax benefits attributed to megaprojects in Mozambique exceeded their tax contribution by more than 72 billion meticais between 2010 to 2019. A CIP researcher suggests better state control.

The Mozambican state in the period 2010 to 2019 granted tax benefits worth 172 billion meticais (about €1.884 million), but only collected 100 billion meticais from the proceeds from megaprojects, according to Centre for Public Integrity (CIP) researcher Inocência Mapisse.

On balance, the Mozambican state therefore lost about 72 billion meticais (almost €789 million) from natural resource megaprojects over the nine years.

“There is an urgent need to review the specific taxation and tax benefits regimes for oil and mining operations,” Mapisse told DW Africa.

DW Africa: What are the main conclusions of your analysis?

Inocência Mapisse (IM): This cost-benefit analysis was based on three main aspects.

The first assumption is that the tax benefit was a cost to the country. And being a cost there must be some benefit. If you are granting some space for a company to act, it means that the state or government should have some benefit from that.

The second assumption is that the direct tax contribution of the extractive sector is a benefit for the country. For the cost, which is the tax benefit, the tax contribution would be the benefit.

And finally, it was assumed that the tax benefits that are presented in the General State Account are related to tax benefits granted to megaprojects.

As a result of this analysis, CIP came to the conclusion that tax benefits were granted in the period from 2010 to 2019 in the amount of 172 billion meticais. But how much has the country lost to earn 172 billion meticais?

We concluded that the country managed to raise 100 billion meticais. This means a difference in the order of 72.6 billion meticais, which constituted an added cost for which it was not compensated.

DW Africa: Hadn’t the government already announced that it would review the issue of tax benefits?

IM: The government, from time to time, announces the revision of the specific regime of the code of tax benefits for the extractive sector, and in 2019 expressed this intention. However, it is 2021 and nothing has happened.

The north coast and central Mozambique have several projects for the extraction of natural gas and other raw materials

DW Africa: Why are there so many tax benefits? Are they the result of lobbying by large multinational companies?

IM: I would say yes. In terms of capacity and bargaining power, companies are stronger than the government. Many of the contracts for projects that are currently in the exploitation phase were signed more than 10 years ago.

However, tax benefits are recurrent and are redundant. For example, if we look at practically all projects in the oil sector, they all have the benefit of VAT exemption on the import of capital goods. But, at the same time, most of them have the benefit of reducing the corporate income tax rate in the first 10 years.

There are other benefits, such as companies like Vale, which in terms of production tax had different nuances from other projects.

These benefits may either arise through lobbying or in a case where on the government side there has been abuse and, who knows, some of these people who were in the negotiation process may have benefited from some resources.

DW Africa: Are tax benefits favourable to multinationals or also to Mozambican-owned companies?

IM: In most cases, they benefit large companies, but in other cases they also benefit small companies around the project.

DW Africa: In light of this surprising analysis, what does the CIP and Inocencia Mapisse recommend?

IM: There is an urgent need to review the specific taxation and the tax benefits of oil and mining operations. It is something that should not be outside the government’s agenda, because the government itself expressed this intention in 2019.

It is necessary to present the tax benefits by category in the General State Account, so as to understand in terms of the oil sector how much has been granted in tax benefits.

There needs to be constant monitoring of the tax benefits being offered, especially in the extractive sector.

Source: Deutsche Welle