Mozambique Treasury Grants Tax Breaks Without Monitoring Effectiveness

• Mozambique's government has granted tax benefits worth MZN355bn ($5.5bn) between 2009 and 2025 without properly testing or monitoring their effectiveness.
• The Centre for Public Integrity found that the government cannot account for which investments truly needed the tax breaks, how many jobs they created, or whether they were worth the revenue given up.
• Tax breaks rose from MZN7.9bn ($123m) in 2009 to MZN30.9bn ($483m) last year, averaging almost the entire public health budget.

The scale makes that failure hard to defend.

Mozambique's government has been granting tax benefits to unknown recipients without properly testing or monitoring their effectiveness, according to a new study by the Centre for Public Integrity (CIP). The report found that between 2009 and 2025, the accumulated revenue lost due to these incentives totals MZN355bn ($5.5bn). This staggering figure has raised concerns about the government's decision-making process, as it cannot account for which investments truly needed the tax breaks, how many jobs they created, or whether they were worth the revenue given up.

The scale of the issue is exacerbated by the fact that tax breaks rose from MZN7.9bn ($123m) in 2009 to MZN30.9bn ($483m) last year. Over the period, they averaged almost the entire public health budget, highlighting the size of the bet the state is making without knowing the odds.

The Centre for Public Integrity's report highlights a critical flaw in Mozambique's tax incentive scheme: the lack of transparency and oversight. By law, VAT relief on imports is only meant to apply when the goods cannot be made in Mozambique. However, the CIP found no evidence that anyone checks whether this condition is met, raising concerns that the policy may be subsidizing imports rather than attracting investment. This design flaw has significant implications for the government's ability to monitor and evaluate the effectiveness of its tax incentives.

The IMF and other international organizations have long argued that stability and a sound business climate are more important determinants of investment decisions than tax breaks. While some argue that the benefits of these incentives may outweigh the costs, the lack of transparency and oversight raises serious questions about the government's ability to make informed decisions.

The findings of the Centre for Public Integrity's report have significant implications for investors and policymakers alike. Lawyers advising clients on investments in Mozambique should be aware of the potential exposure of tax breaks granted by the government, as the benefits of these incentives may not be properly tested or monitored. The report highlights the need for greater transparency and oversight in Mozambique's tax incentive scheme, and underscores the importance of careful consideration when evaluating the effectiveness of such policies.

Ultimately, the issue at hand is not just about the revenue lost due to tax breaks, but also about the lack of accountability and transparency in the government's decision-making process. As Mozambique continues to navigate its economic challenges, it is essential that policymakers prioritize good governance and ensure that public funds are used effectively.

Lawyers advising clients on investments in Mozambique should watch for the potential exposure of tax breaks granted by the government, as a new study suggests that the benefits of these incentives may not be properly tested or monitored.

Source: Original reporting via Centre for Public Integrity