ABSTRACT

This chapter provides a review of tax policy reforms in Mozambique since national independence and an analysis of their revenue impacts. Despite a long history of tax reforms and the recent introduction of a number of significant new taxes in Mozambique, analysis in this area has been limited. This chapter attempts to address this with a view to increasing understanding of the tax system and providing a basis for discussion of future domestic tax policy options. The importance of understanding tax policy and revenue issues in a

resource-scarce country such as Mozambique is clear. At seventh from last in the Human Development Index (UNDP 2004), Mozambique is one of the poorest countries in the world, requiring continued high levels of expenditure on public goods such as health, education and infrastructure to help reduce poverty levels in the medium to long term. With approximately half of its state budget currently financed externally through grants or preferential loans (MPD 2005), any medium-to long-term vision of reducing Mozambican aid dependence requires that domestic resources be raised through taxation, a point which is explicitly acknowledged in the government’s Poverty Reduction Strategy Paper (the Plano de Acção para a Redução da Pobreza Absoluta – PARPA), the latest version of which foresees revenues at 15.1 per cent of GDP in 2009 (GoM 2005a). The problem of insufficient domestic resources is potentially further exa-

cerbated by the current climate of proliferating regional and multilateral trade liberalization agreements which remove, or at best reduce, a major source of revenues for most developing countries. Mozambican participation in the Southern African Development Community (SADC) Trade Protocol has already brought a reduction in customs revenues, while ongoing discussions with the European Union regarding an Economic Partnership Agreement (EPA) and the possibility of joining the Southern African Customs Union (SACU) have the potential to further reduce trade revenues. Nonetheless, the government’s Five-Year Programme for 2005-9 high-

lights the importance of private-sector development and the need to create a

favourable environment for investment and national enterprise (GoM 2005b). Raising domestic revenues whilst remaining faithful to this objective will therefore require a broader understanding of and capacity for analysis of the impact of tax reforms and the tax system in general. The remainder of the chapter is organized as follows. Section 2 provides

an overview of revenue performance from 1975 to 2005. Section 3 discusses the main tax reforms and their impacts in three periods: the immediate postcolonial independence period from 1975 to 1986; the structural adjustment period from 1987 to 1998; and the period covering the most recent wave of tax reforms from 1999 to 2005. Section 4 concludes the chapter by drawing some general lessons from the whole tax reform experience and from the analyses carried out.1