Impact of the tax burden on the survival and competitiveness of MSMEs in Mozambique

Abstract

This article examines how Mozambique’s high tax burden impacts the survival and competitiveness of micro, small and medium enterprises (MSMEs). Drawing on Public Choice theory, it explores how government incentives and bureaucracy shape firm behavior in highly informal economies. The study identifies the main taxes weighing en newly created MSMEs (income tax, VAT, social contributions, municipal fees, etc.) and analyzes how these taxes discourage formalization, reduce efficiency, and encourage tax evasion. It proposes public policy measures such as tax simplification, temporary tax exemptions, formalization incentives and streamlined registration, based on empirical evidence and regional best practices. A comparison with Southern African countries (Namibia, South Africa, Tanzania, Angola, Zambia) highlights successful experiences like turnover-tax regimes and reduced tax rates for SMEs. The political-institutional context in Mozambique (ruling party dominance, Cabo Delgado conflict, restricted civic space) is discussed to explain low public trust. In summary, evidence indicates that Mozambique’s heavy and complex tax system significantly hinders MSME development, and reforms are needed to simplify taxation, improve governance and encourage formalization.