Taxation in the agricultural sector in Mozambique
The requirement of “documented expenses” for income tax purposes and the “taxa liberatoria” are the two biggest tax issues adversely affecting the agricultural sector. The income of thousands of smallholder farmers and the agriculture production of these farmers could be protected by dealing with this issue. If these issues are not dealt with soon, the market for small farmers could drastically diminish. If these problems are not addressed, it may become cheaper for firms to import agricultural products than buy from local farmers. In fact, there are reports that maize is now exported to Malawi where the produce is properly documented and then it is re-imported into Mozambique. This arises because buyers cannot legally buy from unregistered farmers without paying substantial taxes, either through the 20% “taxa liberatoria” or through fines that increase costs 67 percent.
Increasing pressure to exempt parts of the agriculture value chain from VAT risks altering VAT from a tax on consumption to a tax on production. SPEED's Note below highlights reasons why fewer rather than more exemptions would result in improved operation of the VAT system and demonstrates that exemptions for the agriculture sector may well be counter-productive.