Effectiveness and Economic Impact of Tax Incentives in the SADC ...

A-8 APPENDIX
income tax payable by key employees; and reduced registration duties. Special capital
allowances are also available for certain sectors, including: a 20 percent annual allowance for
hotel buildings; a 50 percent investment allowance and 3 year write-off for ICT equipment;
and a 10 percent tax credit (spread over three years) for modernization and expansion
enterprises. In addition to tax incentives, Mauritius also provides financial assistance to small
and medium enterprises.
Tax revenue in Mauritius has averaged about 20 percent of GDP. The company income tax,
however, accounts for just 1-2 percent of GDP. Considering the highly developed condition of
the economy, this is a very low yield. In recent years, expenditure demands have driven the
government budget deficit to unsustainable levels above 5 percent of GDP. The government
has recognized the need for revenue enhancements, but does not appear to be considering
any rollback of tax incentives. Indeed, the 2003 budget adds education and training
companies to the list of categories qualifying for the 15 percent tax rate; provides a tax credit
of up to 60 percent for equity investments in spinning plants; and allows a 10 percent
accelerated rate of depreciation on capital expenditure for golf courses.
Mozambique 114
The Government of Mozambique enacted a major income tax reform in 2002. The reform
included an overhaul of the 1993 Fiscal Benefits Code (amended in 1995 and 1998) and other
special tax regimes which had been widely criticized as costly and complicated. The new
Code simplifies and consolidates previous programs, and reduces the extent of tax relief for
most investors.
The 2002 Code states that the purpose of the tax incentives (“fiscal benefits”) are to benefit
investments that promote economic development and activities “having a recognized public
social or cultural interest.” Provisions of the Code apply to all investments that are duly
registered and authorized for tax purposes, excluding most wholesale and retail commercial
activities. Operationally, the Investment Promotion Center (CPI) serves as the central
institution for promoting and facilitating investments.
The main fiscal benefits, which apply equally to domestic and foreign investors, are
•
Exemption from import duties on capital goods, except where suitable capital goods can be
obtained from local producers;
114 The SADC tax database had incomplete information for Mozambique, which was supplemented from the
following sources: Council of Ministers Decree 16/2002; IMF country report 02/139, 2002, 02/140, 2002, and
03/98, 2003; and the Mozambique country report for 2003 at www.sadcreview.com.