Since 2002 tax incentives in Mozambique have been governed by the Code of Fiscal Benefits. The creation of this legislation was a major step towards formalizing fiscal regimes, and only allows for discretion with respect to tax incentives for projects of large dimension, so-called mega-projects. Even for investment projects of normal dimension, however, previous decrees and a myriad of incentives and deductions provide for a complex incentive system. Due to complexities and a lack of emphasis on recording, figures of forgone revenue for Mozambique have not been available in the past. This lack of data has inhibited cost control and detailed impact analyses of various tax incentives. As a percentage of GDP, fiscal revenues for the Mozambican government

added up to 14.4 per cent of GDP in 2006. This ratio is one of the lowest in Africa, in line only with the revenue-to-GDP ratios of Uganda and of Tanzania (FIAS 2006). While fiscal revenues are relatively low, a variety of fiscal incentives have been granted, which are specifically marked for megaprojects. In 2006, revenues ofMozambique’s largest company and first post-war mega-project, Mozal, were equivalent to 6 per cent of GDP. Whereas corporate income tax is set at 32 per cent for normal firms, Mozal paid an equivalent income tax of approximately 3 per cent in 2006.1 Incentive schemes have been similarly extensive for more recent mega-projects. This chapter provides an overview of the various fiscal incentives available

for investors in Mozambique and presents an initial analysis. Section 2 shows more generally that empirical evidence on the effectiveness of tax incentives is inconclusive and several shortcomings urge caution regarding their application as policy instruments. Section 3 discusses the beneficiaries and the different types of tax incentives applied in Mozambique. Where data are available, the impact of these incentives on state revenues is demonstrated. Estimates show that the Mozambican government in 2006 lost over US$120 million in revenues from income tax incentives granted to Mozal alone, which is equivalent to 12 per cent of the state’s total revenue and 124 per cent of total income taxes collected. Section 4 outlines different policy

implications and highlights the necessity for further analysis of the fiscal incentive regimes in Mozambique. Section 5 concludes.