ABSTRACT
The energy sector plays an increasingly important role in the economic development of Mozambique. The main reason for this is that Mozambique has abundant and yet largely unexplored natural resources, which are attracting substantial foreign direct investment in large energy-intensive industries as well as in the mining, exploration and transformation sectors. These are projects of large dimension, often referred to as ‘mega-projects’. So far, some mega-projects have been realized, such as the Mozal aluminium smelter near the capital Maputo, while several new projects are planned or already under construction (for an overview of mega-projects and their applicable fiscal incentives, see Chapter 15). It is to be expected that the recent transfer of ownership of the Cahora Bassa hydro dam from Portugal to Mozambique will accelerate the realization of various new mega-projects, such as the construction of the Mphanda Nkuwa hydro dam. In this chapter we will argue that these mega-projects offer a good
opportunity to extend the tax base in Mozambique for two reasons. First, with a typically small tax base in Mozambique, mega-projects offer a unique source to increase government revenue, thereby lowering the dependence on foreign aid. Second, electricity production, energy-intensive production processes and mining are known for their substantial negative impact on the environment. An energy tax is an important instrument to internalize these negative externalities. With the exception of natural gas exploration as such, electricity is a key
issue for all existing and future mega-projects in Mozambique. The industrial and mining projects all depend critically on the availability of cheap electricity in large quantities, while the other mega-projects are engaged in the production of electricity. Therefore we focus in this chapter on an electricity tax on mega-projects as a new policy instrument in Mozambique. This implies that we do not consider the taxation of non-renewable resource extraction, such as the exploration of natural gas or coal. Resource extraction is already subject to taxation, and it is outside the scope of this chapter to review this tax regime.
