CAPITAL GAINS TAX EQUIVALENT TO 530 MILLION DOLLARS

The Mozambican Tax Authority (AT) on Wednesday announced that the true payment of capital gains tax on the sale of shares in Area Four of the Rovuma Basin by the Italian energy company ENI to the Chinese National Oil and Gas Exploration and Development Corporation (CNODC) is not 400 million but 530 million US dollars.ENI heads the consortium exploring for hydrocarbons in Area Four of the Rovuma Basin, off the coast of the northern province of Cabo Delgado, where vast deposits of natural gas, amounting to some 80 trillion cubic feet, have been discovered.ENI signed an agreement on 13 March with the Chinese company was to pay 4.21 billion US dollars for 28.57 per cent of the ENI stake in Area Four. Since ENI held 70 per cent of the rights to Area Four, this equated to 20 per cent of the total stake.According to an AT press release, the tax is paid partly in cash and partly in kind. The 400 million dollars refers only to the cash payment, which is 32 per cent of the amount on which tax can be charged. This amount is not the full 4.21 billion dollars of the purchase, but only 1.25 billion dollars – the reduction is due to the length of time that ENI has held the rights. The TA release reproduces the equations used to show how much tax was owing.The second payment is in kind, taking the form of investment of 130 million dollars in building a 75 megawatt power station in Palma, the northern district where ENI plans to build its liquefied natural gas (LNG) plant. Under the agreement, the Mozambican state will own 100 per cent of the power station, but will not bear any of the risk in building it. The power station should be operational by 2018, when the start of LNG production is forecast.The TA points out that this is by far the largest amount Mozambique has ever received in capital gains tax. The cash payment alone is equivalent to about 2.5 per cent of Mozambique’s Gross Domestic Product, and is 74 per cent more that the fiscal contributions of all the mega-projects put together in 2012.