Assembly approves simplified tax system
The Mozambican parliament, the Assembly of the Republic, on Wednesday passed the first reading of a government bill introducing a simplified tax system for small and micro companies. Under this measure, any company or individual trader or producer with a volume of business no higher than 2.5 million meticais (about 100,000 US dollars) a year may opt for the simplified tax instead of the current income, corporation and value added taxes. The simplified tax (known as the ISPC) is charged at 125,000 meticais a year in towns, and 75,000 meticais a year in rural areas. Alternatively, small companies can opt to pay five per cent of their revenue, if in towns, or three per cent in the countryside.
Introducing the bill, Finance Minister Manuel Chang declared that small and micro companies "play a vital role in the national economy since they create jobs, and make products available for the market, thus increasing the competitiveness of the economy". But most of these small businesses are in the informal sector and the government is trying to persuade them to formalize their activities. The survey of the informal sector carried out in 2004, showed there were 497,900 "informal economic agents", employing between one and ten workers, and that are completely outside the tax system. 72 per cent of these informal businesses are urban and 28 per cent rural. The survey found that the average annual volume of business of an informal sector undertaking was slightly more than a million meticais (40,000 US dollars) in the towns, but only 341,271 meticais in the rural areas.
Chang said the government was hoping to bring these businesses into the tax system by offering them a simple system, with minimum accounting and reporting requirements, and low tax rates. There is of course a risk that the state will lose money. For some of the small businesses that currently pay the full battery of income tax, corporation tax and Value Added Tax (VAT) will certainly switch to the simplified tax.
Chang told AIM that the government fully expects this, but believes those losses will be more than offset by people who previously paid no taxes at all deciding to pay the ISPC, and bringing their businesses into the formal sector. The government expects 57,000 small and micro businesses to pay the ISPC, and that the net result will be an extra 59.5 million meticais of tax revenue for the state per year,
Deputies of the opposition Renamo-Electoral Union coalition abstained in the vote, arguing that a tax of 75,000 meticais a year (which is a mere 6,250 meticais a month) was too much to demand from a small rural business. Their grasp of mathematics was so poor that they failed to understand that anyone who found this too much, could opt to pay three per cent of gross revenue. Most will surely do this - three per cent of the average rural informal sector annual revenue is only 10,238 meticais (410 dollars) a year.