Mozambique oil imports nearly halve after VAT exemption lifted

Mozambique’s oil imports fell by almost half in the first quarter of the year compared to the same period in 2023, following the end of the VAT exemption, according to official data compiled by Lusa on Friday.

According to the Bank of Mozambique’s foreign trade data, the country imported oil worth a total of $58.1 million (€53.2 million) in the first quarter of 2023, with purchases falling by more than 40% in the first three months of this year, to $34.7 million (€31.8 million).

In March, the Mozambican government guaranteed that the end of VAT exemptions on oil and soap, which had been in effect from the end of 2023 until the end of 15 years, would be maintained, arguing that national companies had not taken advantage of the opportunity.

“We are not going to grant VAT exemptions again,” Industry and Trade Minister Silvino Moreira said in response to a question from reporters in Maputo on the sidelines of a public event.

“The opportunity that the government gave, unfortunately, did not benefit the consumer. And we want the industry to understand that it needs to work,” said a government official.

Entrepreneurs in this sector publicly stated back in December that the abolition of the VAT exemption regime in 2024 for these national products would jeopardize the future of these industries by stimulating the import of cheaper products without the same quality, as well as the price increase that has since occurred in these basic products of the food basket.

Mozambican businessmen last May defended a support programme aimed at increasing the use of domestic raw materials in the oil and soap industries, products that will lose their VAT exemption from December 31, 2023, suggesting that it would save $300 million on purchases abroad.

“This will help reduce imports by approximately $300 million. [276 milhões de euros]”In other words, we will create an additional demand of $300 million from local industry, which could lead to increased investment in the agricultural sector, resulting in an additional 6% growth in the sector,” said the president of the Confederation of Economic Associations of Mozambique (CTA), Agostinho Vuma.

Speaking at the opening of the XIX Annual Conference of the Private Sector (CASP) in Maputo, in the presence of the President of the Republic, Filipe Nyusi, Vuma pointed to the limitations caused by the abolition of the VAT exemption for these two companies’ products, acknowledging that the dialogue on changing the measure with the Ministries of Industry and Commerce and of Economy and Finance had been “fruitful”.

“And this becomes fundamental because, despite the fact that VAT is a tax paid by the consumer, companies often lose competitiveness because this rate [percentagem do imposto aplicada] makes your products more expensive. Therefore, we are convinced that there is an opportunity to create an incentive program that will allow us to replace approximately 80% of imported raw materials with locally produced products,” he noted.

The CTA proposal, according to Vum, includes “renewing the VAT exemption tax incentives for the transport of vegetable oil and soap” but tying in “a commitment by businesses to increase the use of local raw materials in their production process from the current 20% to 60% within two years.”