MOPZAMBIQUE’S PARLIAMENT AMENDS TAX REGIME FOR MINING SECTOR

MAPUTO, Mozambique’s Parliament, the Assembly of the Republic, has unanimously passed two government Bills changing the tax regime for mining and petroleum activities, which Finance Minister Adriano Maleiane says are intended to improve the business environment and attract further investment.

The Mining Amendment Bill doubles the mining production tax levied on the extraction of sand and stones from 1.5 to three per cent, the same rate as charged on base metals and coal. Taxing quarries and sandpits at the same rate as most mines, said Maleiane Thursday, would improve the amount of money which local communities obtain from this tax, and reduces the damaging effects of mining activity on the environment.

Both Bill also eliminate a provision in the 2014 legislation on taxes in the extractive industry which reduces taxes by 50 per cent when the end product is intended for use in Mozambican industry. The original idea had been to stimulate the use of Mozambican mining products to develop local industries, Maleiane said, but in reality companies simply lied about where they were selling their products.

The Minister said: “Practice has shown that the declared destination does not always coincide with the real destination of the products. For this reason, and to improve transparency in collection of this tax, it is proposed to eliminate this norm.”

The Surface Tax charged on companies extracting mineral water will no longer be charged by the hectare but by mining title. It remains a very low tax, charged at the rate of 85,000 meticais (about 1,390 US dollars) a year, but per mining title and not per hectare. This will reduce the taxes paid by mineral water companies.

For holders of mining certificates, the surface tax is cut dramatically, from 17,500 meticais to just 30 meticais per hectare from the first to fifth years of operation and from 25,000 to 50 meticais per hectare from the sixth year onward. This is a 99.8 per cent cut in this tax.

The old rate of surface tax discouraged operators from using their mining certificates, and the government believes that the huge reduction in the tax will encourage legitimate small-scale mining.

The bill also guarantees fiscal stability to extractive companies � but only to those with a minimum investment of five million USD, in the case of mining, and of 100 million USD, in the case of oil and gas. This is very different from the 2014 legislation which granted fiscal stability for a ten-year period to any extractive company, regardless of the size of its investment.

Fiscal stability means that during the ten-year period, the tax regime for the beneficiary will not change.

The net effect of these changes is very small. The government forecasts that the changes in mining taxation will net the Treasury an extra 99,774 meticais (1,636 US dollars) a year, and the annual gain from the alterations in oil and gas taxation will be 1.13 million meticais.

Maleiane said, however, the changes would be worth making, since they would help attract more investment. Much more significantly, an amendment proposed by the Assembly’s Constitutional and Legal Affairs Commission would greatly increase the amount of money Mozambique would receive from Capital Gains Tax charged on transactions in the extractive sector.

The Capital Gains Tax rate is, in theory, 32 per cent. In practice, it is much less because companies have been able to treat their sales of shares as if they were selling assets on a stock exchange.

The amendment gives Capital Gains Tax autonomy, meaning it is not dependent on any other taxes or gains, and will be paid at exactly the same rate regardless of whether the transaction takes place inside or outside Mozambique. Furthermore, the costs of paying Capital Gains Tax cannot be deducted from a company’s other tax liabilities.

If this had been in force when the Italian energy company, ENI, sold half its equity stake in the Rovuma Basin Offshore Area Four to the American oil and gas giant, ExxonMobil, for 2.8 billion dollars, ENI would have had to pay the full 32 per cent tax, and not the currently agreed figure of less than half that amount.

Source: NAM NEWS NETWORK