Capital gains on mining resources provides 9 pct of Mozambique’s GDP

12 May 2014

Mozambique has so far netted the equivalent of 9 percent of its gross domestic product (GDP) by charging capital gains tax on the sale of stakes in mining and oil and gas projects, according to the Economist Intelligence Unit (EIU).

The EIU’s calculations, included in its latest report on Mozambique, show that the amount charged by the Mozambican tax authorities totals US$1.3 billion since 2012 or the equivalent of 9 percent of GDP in 2013 and that this has not put off investors in the sector.

At the end of March the Mozambican Tributary Authority announced it had charged US group Anadarko Petroleum US$520 million in capita gains tax.

The fact that six other transactions, along with the four that have already been taxed, are under analysis shows that “the impact on revenues may be even greater,” than is currently expected, and the amount received so far may in fact double to around 20 percent of GDP, the EIU said.

Amongst the transactions under analysis is the acquisition by Anglo-Australian group Rio Tinto, in 2011, of the coal mining assets of Australia’s Riversdale Mining, which may net the country another US$200 million in retroactive capital gains.

The remaining transactions being analysed have not been named by the Mozambican authorities but given that all the recent operations in the natural gas industry were taxed, these can only be mining sector transactions, which occurred before capital gains tax was applied.

“Retroactive taxation frightens foreign companies but we do not expect the current position of the Tributary Authority will make investors turn their backs on Mozambique as the tax climate is, in other respects, relatively investor-friendly,” the EIU said.

Additional tax revenues will lead to the EIU revising its projections for Mozambique, which currently expects a slight drop in its forecast for this year’s budget deficit (currently 9.9 percent of GDP).

Mozambique has benefitted from a wave of foreign investment focused on the mining and energy sectors, particularly natural gas, which has been of particular interest in Asia.

“The large natural gas reserves will attract more foreign investments and new trading partners, especially amongst the large Asian gas importing countries,” the EIU said.

Investment and exports will be the economic drivers over the next few years, which are expected to see constant two-digit growth, from 7.6 percent of GDP this year to 7.9 percent in 2018 according to the EIU’s current projections. (macauhub/MZ)