Since 1998, the Government of Mozambique has been pursuing a comprehensive tax reform program to modernize and strengthen the tax system. Yet many business leaders have expressed concerns about the effects of the new system on private sector development.

Specifically, businesses are concerned that the overall tax burden is too high and the tax base too narrow; tax administration is inefficient, arbitrary, and prone to corruption; the tax system makes undue demands on cash flows; various tax provision are biased against many domestic producers; and public information and public-private dialogue about taxes are inadequate.

USAID asked Nathan Associates to evaluate these concerns and to recommend any necessary adjustments to the tax reform program. We found that although Mozambique’s reforms are solidly in line with best practices for low-income countries, the concerns of the private sector merit serious attention.

We recommend more than 40 concrete measures for addressing these concerns so that the tax system can raise sufficient revenue while better facilitating private sector development, efficient investment, and job creation.

While some measures support reforms already underway, most do not appear on the current agenda. Two fundamental recommendations are that the government strengthen its capacity for tax policy analysis and cultivate effective dialogue with stakeholders.

Business leaders have presented our analysis to the Government of Mozambique, and the IMF which has been heavily involved in tax reform in Mozambique has endorsed many of our recommended measures. The report was authored by Dr. Bruce Bolnick.