This paper examines the revenue-productivity effects of Mozambique’s tax reforms since 1998, tracing how policy and administrative changes altered the state’s capacity to convert tax bases into stable and growing revenues. Combining macro-level fiscal data with micro-level revenue-productivity indicators (tax buoyancy, C-efficiency, and effective collection ratios), we find that reforms initially lifted the tax-to-GDP ratio from 13% in 2004 to 21% in 2011, but subsequent gains plateaued as generous incentives, base-narrowing exemptions, and administrative constraints eroded productivity.

Tax-specific findings:

Corporate income tax (CIT) exhibits a high statutory rate (32%) yet low productivity, reflecting profit-shifting opportunities and sector-specific holidays introduced under the 2009 Code of Fiscal Benefits.

Value-added tax (VAT) remains the single largest revenue source (27.5% of total revenue in 2021), but its C-efficiency is undermined by extensive zero-ratings and refund delays, while regressivity concerns limit further rate increases.

Personal income tax (PIT) collections are concentrated on public-sector wages, leaving large informal and high-income segments undertaxed.

Difference-in-differences estimates:

Difference-in-differences estimates exploiting cross-sector variation in incentive exposure indicate that firms benefiting from tax holidays reduced reported profits by 18–25% relative to non-beneficiaries, implying revenue losses of about 1.3% of GDP annually—roughly the cost of universal primary health care.

Simulations of revenue-neutral base-broadening reform:

Simulations of a revenue-neutral base-broadening reform—scaling back CIT holidays and VAT exemptions while lowering statutory CIT and VAT rates by 2–3 percentage points—suggest a net productivity gain of 0.8% of GDP within three years, with distributional impacts cushioned by expanded social transfers.

Conclusion:

The findings imply that Mozambique can achieve higher and more equitable revenue productivity not through higher headline rates, but by rationalising incentives, strengthening administration (e-invoicing, risk-based audits), and aligning sub-national revenue tools with central reforms.