Maputo — The Mozambican government has reversed its decision to impose Value Added Tax (VAT), at the standard rate of 17 per cent, on sugar, vegetable oil and soap.
These goods, regarded as essential had been zero rated for the past 18 years, but it was always intended that they should pay VAT.
The VAT exemption was removed in December 2019, and so, as from January, the prices of these goods went up. No attempt was made to inform consumers of the impending price rises, and so the first shoppers knew about it was when they found themselves paying an extra 10 meticais (about 15 US cents) for a kilo of sugar.
Companies that produce soap and edible oil were furious when the VAT exemption disappeared. Some of them claimed they would not be able to sell their products at a higher price, and even appeared on television threatening to close their businesses down.
So the government retreated. At the end of Tuesday's meeting of the Council of Ministers (Cabinet), the Deputy Minister of Industry and Trade, Ludovina Bernardo, said that reinstating the VAT exemption was necessary in order to attenuate the economic impact of the coronavirus pandemic.
The VAT exemption covers not only the finsihed goods, but also the raw materials, equipment and parts imported by the sugar, vegetable oil and soap industries.
The final decision, however, must be taken by the country's parliament, the Assembly of the Republic. Bernardo said the government is submitting an urgent bill to the Assembly, altering the VAT code so as to reinstate the VAT exemptions on these goods. The exemptions, she added, should remain in force until 31 December this year.
"Because of the impact the pandemic is having on our population, whose purchasing power is continuing to shrink, the government thought it best to reinstate this VAT exemption", Bernardo said.
She also announced said the government has approved fiscal, customs and monetary measures to support private business, in order to ensure a rapid economic recovery. But these measures will only be made public, she added, after implementation measures have been discussed.