Ratification: Mozambique Select Committee on Finance 20 November 2007 Presented by Yanga Mputa Tax Policy Unit :National Treasury

2 Purpose of Tax Treaties Policy Promote economic growth by providing certainty on cross border investments Prevent double taxation of the same income through: –Provision of certainty on tax treatment –Assignment of taxing rights between the two treaty countries Administration Exchange of information Mutual Agreement Procedure

3 Tax Treaty Approval Process Tax treaties reflect fundamental tax policy choices of each country A number of features reflected in tax treaties may differ from what is reflected in domestic tax law due to the fact that obtaining a tax treaty sometimes requires a concession on critical matters to each country, e.g., withholding tax rates in tax treaties are generally lower than in domestic tax law. Hence, it is important that a tax treaty should be approved by parliament before it can be binding In SA, this approval process is done in accordance with S231 of the Constitution read with S108(2) of the Income Tax Act The tax treaty presented to the Select Committee today for approval constitute what we believe is in the best interest of SA

4 Aim of SA/Mozambique Tax Treaty Aim of the tax treaty with Mozambique: –Strengthen existing economic relations –Mozambique member of SADC This a new tax treaty between SA/Mozambique Signed in SA on 18 September 2007 (during Mozambique Head of States Bilateral Commission)

5 Investment flows SA investments into Mozambique SA is Mozambique’s largest foreign direct investor SA has used the Industrial Development Corporation (IDC) as the primary catalyst for SA investment in Mozambique The IDC has approved funding for 10 projects in Mozambique and is currently considering other additional projects in the area of mining and mineral beneficiation, agriculture, tourism, chemicals, forestry, transport infrastructure and energy Other major investments by SA into Mozambique are: Sasol Gas Pipeline Project valued at US$1.4 billion SAB miller investment valued at US$50 million Illovo Sugar investment valued at US$63 million Xinavane investment valued at US$70 million CDM investment valued at US$22 million McCormack investment valued at US$15.5 million

6 Investment flows SA owned/managed companies in Mozambique –There are over 100 SA companies operating in Mozambique –The example are the following: Steers, Vodacom, Shoprite, PEP, SAB Miller, Illovo Sugar, Sasol, Standard Bank, Separation Scientific, Game, Tongaat-Hulett Group, Ackermans, Mr Price, etc Mozambique investments into SA –Investments by Mozambique into SA are minimal

7 Trade Flows Exports to Mozambique Mozambique is SA’s second largest export market in Southern Africa, with the trade balance currently in favour of SA Exports to Mozambique are as follows: –R5,07 billion in 2004, –R6,4 billion in 2005, –R6,2 billion in Imports from Mozambique Imports from Mozambique are as follows: –R204 million in 2004, –R199 million in 2005, –R318 million in 2006.

8 Cross Border Movement of Individuals Mozambique migrant labourers working in SA mines (Regulated by the Labour Agreement between SA/Mozambique) Exchange of tourists between the two countries Students from Mozambique studying in South Africa universities People from Mozambique doing shopping in SA

9 THANK YOU