Reaping the full benefits of tax reform in Mozambique

• Pages: 308-309

Page 308

Since 1996, Mozambique has been pursuing a comprehensive set of reforms designed to modernize its tax system. A recent study by Teresa Dabán (IMF African Department) reflects on progress so far and recommends further steps that would enable the economy to benefit fully from the reformed system. She discussed her findings with Jacqueline Irving of the IMF Survey.

IMF SURVEY: How do Mozambique's tax systems compare with those of other countries at similar development levels?

DABÁN: Mozambique's ratio of tax revenue to GDP, at just over 11 percent last year, is lower than that of other sub-Saharan African countries at a similar development level. So there is significant room to increase this ratio by strengthening tax administration and enforcement, including by improving the capabilities of tax officials through better training, recruitment, and employment incentives.

IMF SURVEY:What were the aims of the tax reforms, and how were they implemented?

DABÁN: The main goal was to establish a modern, efficient tax system that would generate enough resources for the government to reduce poverty and maintain a stable macrofiscal framework. The reforms were implemented gradually, with a strong commitment from the Mozambican authorities, and, importantly, with the support of the international community, including IMF technical assistance.

The first step was to reform customs, which were not generating much revenue and were impeded by illegal practices and corruption. The second step was to implement a system of domestic taxes in line with international standards. Now, the latest stage is to improve tax administration and fully benefit from the newly reformed system by encouraging full taxpayer compliance and ensuring full implementation of the reforms.

IMF SURVEY: Have these reforms delivered their goals?

DABÁN: Customs reform has been a success; in fact, Mozambique could be a good role model for other developing countries in this respect. At an early stage of customs reform, in 1996, the government outsourced customs administration to a private foreign firm with previous experience in implementing customs reform in other countries. This firm effectively restructured and managed customs operations without any political interference. Once customs administration had begun working reasonably well, the authorities began taking over the new system in 2003.

The new customs system, which has retained the private firm in an advisory role, has...