## sipea2026091

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---

### Fuel Subsidy Reform (2023–25): Context and Rationale
- Angola maintained one of the world’s most extensive fuel subsidy regimes, keeping gasoline, diesel, kerosene, and LPG prices low.
- Subsidies cost the government approximately 3 percent of GDP at their peak as a share of national income in 2021.
- Subsidy fiscal cost peaked at $4.3 billion in 2022.
- Most benefits were captured by wealthier households: the top 20 percent consumed roughly two-thirds of subsidized fuel, almost 25 times as many subsidies as the poorest 20 percent.
- Reform design:
  - A three-year fuel subsidy reform (2023–25) aimed to align domestic fuel prices with international levels, reduce the subsidy bill, and redirect resources to targeted social support.
  - Key policy steps:
    - June 2023: gasoline prices nearly doubled.
    - Diesel prices increased incrementally three times between April 2024 and July 2025.
  - By end-2025 diesel prices rose by 167 percent (from $0.16 per liter to $0.43 per liter) but remained below international market prices (about $1.2 per liter).

### Fiscal Impact and Decomposition of Savings
- Estimated cumulative reduction in fuel subsidies between end-2022 and end-2025: $2.2 billion U.S. dollars or 1.4 percentage points of GDP.
- Annual decomposition of the cumulative decrease:
  - 55.8 percent: $1.2 billion U.S. dollars or 0.4 percentage points of GDP occurred in 2023.
  - 19.4 percent: $0.4 billion U.S. dollars or 0.5 percentage points of GDP occurred in 2024.
  - 24.8 percent: $0.6 billion U.S. dollars or 0.6 percentage points of GDP occurred in 2025.
- Box 1 fiscal accounting:
  - Fuel expenditure reduced by Kz312 billion (from Kz1.75 trillion to Kz1.43 trillion) in nominal values during 2023–25.
  - Fuel expenditure relative to GDP declined from 3.8 percent of GDP at end-2022 to 1.6 percent of GDP at end-2025 (a 1.4 percentage point reduction).
- Decomposition of drivers of fiscal savings (percentage points of GDP):
  - Reduction in fuel consumption intensity per unit of GDP: 1.2 percentage points of GDP (largest contributor).
  - Decline in world fuel prices: 0.9 percentage points of GDP.
  - Change in fuel subsidy rate: 0.4 percentage points of GDP.
  - Forgone additional savings from not passing on full exchange rate depreciation to pump prices: 1.1 percentage points of GDP.

### Macroeconomic and Fiscal Repercussions
- Inflation rose sharply, reaching 20 percent by end-2023, driven by higher fuel prices and currency depreciation.
- Estimated average annual budget space made available: approximately $2.2 billion U.S. dollars for social programs and infrastructure (noting that complete fiscal benefits depend on finishing price alignment and inflation management).
- Improved transparency and a leaner subsidy bill contributed to deficit reduction, although subsidy expenses continued to outpace health and education allocations until recently.

### Communication Strategy, Public Response, and Political Economy
- Government conducted national campaigns explaining rationale and benefits, emphasizing savings would fund social programs; skepticism persisted due to historical distrust.
- Urban populations, especially transport sector workers, reacted strongly leading to strikes and unrest.
- Shortcomings included timing, reach, and transparency of communications and delayed rollout of mitigation measures.
- Angola prioritized improving communication through early stakeholder engagement, simpler messaging, emphasis on beneficiaries, and realistic expectations.

### Mitigation Measures and Social Protection: Programs, Outcomes, and Challenges
- Fuel Cards
  - Status: Discontinued shortly after launch due to substantial upfront cost.
  - Outcome/Challenge: Early fiscal savings were less than cost; launch described as disastrous and discontinued.
- Preferential Fuel Rates
  - Target: Agriculture, fisheries, public transport.
  - Outcome: Helped moderate food price increases and supported jobs.
  - Challenge: Logistical delays hindered timely distribution, especially in urban centers.
- Social Passes (“Gira Mais”, “Bilhetica”)
  - Target: Disabled individuals, elderly, students.
  - Outcome: Piloted in 2 provinces; now 343,000 passes distributed across 6 provinces.
  - Challenges: Digital integration issues, governance changes at “Teco”, bus acquisition delays; rollout slowed; expansion to tertiary education students planned.
- National Employment Fund (FUNEA)
  - Objective: Aid job placements for recent graduates and unemployed workers affected by higher costs.
  - Design notes: Presidential Decree no. 133/23; initial capitalization approximately set for Kz590 billion with immediate availability of Kz25 billion.
  - Outcome/Challenge: Remains underfunded and ineffective; capitalized twice with budgetary resources of Kz10-11 billion each; expanded deployment beyond fuel-price mitigation reduced effectiveness.
- Project “Engila”
  - Funded by the World Bank to enhance governance of local administration and improve basic public service delivery, leveraging existing projects for efficiency and value for money.
- Kwenda Cash Transfers
  - Design: Quarterly payments to offset rising costs.
  - Outcome: Expanded to over 1.4 million predominantly rural families.
  - Challenge: Limited urban coverage and implementation challenges affecting sustained outreach.

### Lessons from Angola’s Experience (2023–25)
- Short-Term priorities:
  - Expand urban cash transfers.
  - Expand public transport vouchers.
  - Provide tax relief on essentials.
  - Intensify transparent communication and stakeholder engagement.
  - Synchronize adjustments of fuel prices and mass transportation administered fares.
- Medium-Term priorities:
  - Institutionalize automatic fuel pricing mechanisms.
  - Strengthen social safety nets.
  - Reprioritize spending toward health, education, and infrastructure while embedding fiscal discipline.
- Ongoing priorities:
  - Maintain continuous engagement.
  - Monitor social impacts.
  - Collaborate regionally.
  - Adapt policies based on evidence.

### Comparative Insights from Other Countries
- Ghana (2005, 2013)
  - Mitigation: Visible social spending (eliminated fees for state primary/secondary schools; increased public bus fleet).
  - Outcomes: Built public acceptance by showing fuel savings funded education; PSIA before reform highlighted distributional effects.
- Indonesia (2005, 2014)
  - Mitigation: Direct Cash Transfers (BLT) to 19M+ households; kerosene-to-LPG conversion.
  - Outcomes: Shifted benefits to cash-in-hand; reduced fiscal deficit by $15B in 2015.
  - Lesson: Timing and speed—aligning hikes with low international oil prices or delivering cash before hikes prevents backlash.
- Mozambique (2012–2017)
  - Mitigation: Targeted transport subsidies ("tickets modérateurs") and increased social spending by 19%.
  - Outcomes/Lessons: Prevented cascading urban transport inflation; depoliticize pricing via Automatic Fuel Pricing Mechanism (AFPM).

### Public Investment Trends and Efficiency Gap
- Public investment surged after 2006 but declined following the 2014 oil price shock.
- External financing has been significant but has shifted from concessional to commercial loans.
- Public-private partnerships (PPPs) are minimal and underutilized.
- The spending efficiency gap relative to peers is widening (Figure 4).
- Premium must be placed on spending smarter to achieve greater efficiency gains and meet development objectives.

### 2019 Public Investment Management Assessment (PIMA) — scope and method
- The 2019 PIMA evaluated 15 institutions across three phases:
  - (i) planning of sustainable investment across the public sector,
  - (ii) allocation of investment to the right sectors and projects,
  - (iii) implementation of investment projects to deliver productive and durable public assets.
- Each institution was assessed on both institutional strength (organization, policies, rules and procedures on paper) and effectiveness (degree to which the intended purpose is being achieved in practice).

### 2019 PIMA — key findings for Angola
- Institutional design of public investment management (PIM) comparable to peers, but effectiveness low.
- Assessed as strong on:
  - fiscal rules and targets,
  - project appraisal,
  - asset monitoring.
- Assessed as weak on:
  - budgeting,
  - project selection,
  - procurement,
  - funding availability.
- Effectiveness generally low, especially in budgeting and procurement.
- Significant issues:
  - Absence of a systematic operational Medium-Term Fiscal Framework (MTFF), undermining long-term fiscal planning and resource allocation.
  - Poor enforcement of project appraisal processes and insufficient risk assessment practices.
  - Inadequate multi-year budgeting practices and limited funding for maintenance.
  - Procurement processes heavily dominated by exceptions rather than competitive tendering.
  - Weak fiscal risk management regarding State-Owned Enterprises (SOEs) and Public-Private Partnerships (PPPs).
  - Fragmented IT systems and limited human capacity, impeding efficient project management and oversight.

### PIMA Action Plan and PFM Action Plan objectives (2021 and 2025)
- Action plans aim to close gaps in appraisal and selection, budgeting, procurement and funding, IT systems, project and risk management effectiveness. Specific objectives include:
  - Funding Availability:
    - Amend legal framework so only projects with secured funding are budgeted.
    - Exceptions apply solely to projects reliant on treasury liquidity that meet strict criteria and clearly justify necessity, viability, and funding sources.
  - Project Appraisal and Selection:
    - Introduce objectives for clear criteria and stronger oversight for systematic, transparent project evaluation.
  - Comprehensive Cost Estimation:
    - Require full project cost estimates — including multi-year and maintenance costs — before budget approval.
  - Fragmented IT systems:
    - Integrate the Public Investment Project Management System (“Sistema de Gestão de Projectos de Investimento Público” (SIGPIP)) with the Integrated State Financial Management System (“Sistema Integrado de Gestão Financeira do Estado” (SIGFE)) to enhance project management, oversight, and public transparency.
  - Pipeline Management and Risk Assessment:
    - Mandate annual removal of inactive projects, regular publication of execution reports, and systematic risk assessment using a risk matrix to strengthen pipeline discipline and fiscal oversight.
- Footnotes:
  - The PFM action plan remains to be finalized and approved. Implementation is expected to start in the second half of 2026.

### Progress, Implementation Gaps, and Capacity Challenges
- Legislative and regulatory reforms have progressed, including approval of the 2025 PIM regulation and incipient institutionalization of the MTFF and limited fiscal risk coverage in the budget.
- Implementation lags in building capacity, fully applying existing rules, and achieving consistent, practical results.
- Practical implementation and measurable improvements in project planning, execution, oversight, and spending efficiency remain limited despite action plans.
- Limited progress in project appraisal enforcement, IT integration, and fiscal risk assessment highlights need to focus on building capacity and enforcing reforms in practice.
- A Ministerial reform in 2024 moved DNIP from the Ministry of Finance to the Ministry of Planning, posing additional challenges for capacity building, gatekeeping by the Ministry of Finance, and coordination between the Ministry of Planning and Finance in PIM oversight.

### Lessons from Peers and Comparative Insights for PIM
- International evidence: efficient public spending can yield up to one-third more value, with potential output gains up to 11 percent in emerging economies (IMF, 2025a).
- Redirecting funds toward infrastructure, education, health, and R&D, while closing efficiency gaps, is critical for Angola’s growth and equity.
- Relevant peer experiences:
  - Rwanda: streamlined procurement and integration of digital tools under broad-based PFM reforms; robust monitoring and evaluation systems.
  - Togo: rigorous project appraisal mechanisms and multi-year fiscal planning; institutionalization of MTEF.
  - Estonia and Sweden: institutionalized medium-term budgeting processes; Estonia’s digital government infrastructure; Sweden’s fiscal framework mandates compliance with multi-year budget ceilings.
- Key lessons: enhancing efficiency, strengthening governance and institutions, and adopting medium-term fiscal planning are critical to achieve higher returns on public investment.

### Domestic Revenue Mobilization — Context and Challenges
- Angola’s fiscal health relies heavily on oil revenues, complicating sustainable revenue mobilization and underscoring urgency of non-oil domestic revenue mobilization.
- Overall revenue collection as a share of GDP has been in a secular decline over the past couples’ decades and is now lower than peers’ median levels (Figure 5).
- Oil revenues are declining due to over-sweetening the oil sector’s fiscal regime incentives aimed at placating adverse effects of aging and marginal oil fields on production levels.
- Non-oil tax collection constrained by:
  - a narrow base,
  - administrative bottlenecks,
  - a dominant informal sector (approximately 78 percent of employment).

### Recent Reforms and Revenue Administration
- Authorities have streamlined tax codes and advanced digitalization through mandatory e-invoicing and tax filing to boost compliance and collection.
- Significant capacity development (CD) resources have been allocated to revenue administration for improved compliance, risk-based inspections, auditing, and enforcement.
- AGT reforms and achievements since 2018:
  - Organizational and governance reforms.
  - Creation of the Large Taxpayers Office.
  - 2022 deployment of a fully integrated Tax Management Platform automating all tax functions.
  - Introduction of mandatory e-invoicing, e-fillings, notifications, and fully digitalized tax submission across all major tax categories and taxpayer segments.
  - Legislation to expand digitalization beyond AGT to use third-party data from other public and private sector entities.
- Recommended next step: create a Data Warehouse (DW) to analyze large data sets for risk analysis, information cross-matching and tax intelligence (Pecho et al., 2023).
- Advances in fighting corruption limited amid VAT fraud scandal uncovered in early 2025 involving a scheme to fraudulently obtain VAT reimbursements from the AGT (Lusa - Business News 2025).

### Revenue Performance Indicators and Numerical Findings
- Yields of tax revenue to tax bases have been declining and remain significantly lower than statutory rates.
- Corporate Income Tax (CIT) collected from the non-oil sector in 2024 is only 9.3 percent of the estimated profit share of non-oil GDP (as opposed to the standard statutory CIT rate of 25 percent).
- CIT collected in the non-oil sector to the estimated profit share of non-oil GDP excluding agriculture has been relatively stable.
- CIT collected from the oil sector in 2024 was about 25 percent of the estimated profit share of oil GDP, a significant decline from 2022.
- Value-added tax (VAT) revenues as a share of both imports and consumption have been declining and are significantly below peers.
- VAT collected in 2024 is:
  - 2.3 percent of consumption,
  - 9.1 percent of imports of goods and services.
- Statutory and observed rates and yields (Table 3):
  - A. Corporate Income Tax (CIT) 1/ — Statutory Rate: 25
    - Oil sector (% of profits): 29.5 56.8 29.4 25.8
    - Non-oil sector (% of profits): 12.1 11.6 9.4 9.1
    - Non-oil sector excl. agriculture (% of profits): 13.2 13.1 13.2 13.0
  - B. Value Added Tax (VAT) — Statutory Rate: 5~14
    - VAT (% of consumption): 4.3 3.9 3.1 2.3
    - VAT (% of imports of goods and services): 13.0 13.6 11.5 9.1
- Notes:
  - The standard VAT rate in Angola has been 14 percent since 2019. The government introduced reduced rates (7 percent for a wide range of consumption goods and services and 5 percent for certain food products and agricultural inputs) since 2021 (effective January 1, 2022).
  - Profits for oil and non-oil sectors are assumed at 50 percent and 40 percent of sectoral value added, respectively.

### Tax Policy, Incentives, and Shortcomings
- AGT estimates Kz3 trillion in fiscal benefits were granted to firms in preferential non-oil sectors from 2018–24, with Kz1.5 trillion in 2024 alone.
- The latest CBF amendment:
  - Keeps all CIT exemptions and the contractual regime.
  - Leaves tax incentives for MSMEs unchanged.
  - Retains startup CIT exemptions and reduced rates, investment tax credits, and capital gains deductions.
- The 2022 VAT reform expanded reduced or zero rates for goods and services, further lowering non-oil revenue yields.
- New PIT and CIT codes aim to shift from a schedular regime to a unified PIT and consolidate and simplify corporate income taxation.
- Remaining shortcomings:
  - No inflation adjustment.
  - Some schedular fragmentation continues.
  - Withholding rates are non-final.
  - Marginal rates and progressivity unchanged.
  - Health and education deductions became more generous refundable credits.
  - Capital gains are not withheld.
  - Annual filing still needed for most taxpayers.
  - CIT rates remain fragmented (general 25 percent rate, 10 percent reduced rate for certain sectors, 35 percent rate for others).
  - Code does not include Qualified Domestic Minimum Top-up Tax (QDMTT) rules or reference OECD GloBE standards.

### Policy Lessons and Recommendations for Revenue Mobilization
- Angola can significantly boost domestic revenue through a blend of quick wins and structural reforms.
- Suggested policy priorities:
  - Base broadening and simplification, rationalizing exemptions, and modernizing property tax.
  - Reducing bureaucratic barriers to help informal businesses formalize and expand tax registry.
  - Improved compliance via simplified regimes, incentives, enhanced administration, risk-based management, targeted audits, digital tools, and staff training.
  - Emphasis on transparency, anti-corruption, and customs reform.
  - Continuous improvement with diagnostics, strategic planning, leadership, stakeholder engagement, and regular monitoring.
- Elements for improved tax design (summary):
  - Tax expenditures: rationalize and reduce exemptions and holidays in PIT, CIT, and CBF.
  - Investment incentives: replace inefficient full exemptions with investment credits and accelerated depreciation.
  - VAT: expand coverage, lower small taxpayer thresholds gradually, limit exemptions on basic goods; potential revenue increases approximately 2.3 percent of GDP.
  - Excise taxes: shift IEC from ad valorem to specific excise taxes.
  - Property taxes: broaden base and improve compliance using digital registries.
  - PIT: simplify regimes, rationalize deductions, raise marginal rates and thresholds, adjust thresholds for inflation, implement capital gains withholding, remove deductions for health and education.
  - Import tariffs: phase out with capacity improvements.

### Concluding Remarks (Policy Implications and Priorities)
- Angola faces tight fiscal constraints from falling oil revenues, high social needs, and weak infrastructure.
- Recent reforms—fuel subsidy cuts, improved public investment management, and efforts to boost domestic revenue—have helped reduce unsustainable spending and strengthen fiscal frameworks, but important gaps remain.
- Key challenges: subsidy reform is incomplete; investment management lacks effective implementation; tax yields are low due to informality and exemptions.
- Continued reform focus:
  - Pursue completion of subsidy reform and credible mitigation measures to build citizen trust.
  - Strengthen public investment management implementation.
  - Prioritize domestic revenue mobilization through rationalizing tax expenditures, modernizing tax administration, digitalization, and targeted enforcement.
  - Design reforms to be phased and tailored, balancing quick wins with capacity-building measures to ensure sustainable, inclusive growth.

*Source: Angolan authorities' data, Global Petrol Prices, IMF Fossil Fuel Subsidies Data: 2025 Update, IMF staff calculations, and referenced documents and tables within the source PDF.*

### References ______________________________________________________________________________

### sipea2026091 - References ______________________________________________________________________________

### Fuel Subsidy Reform (2023–25): Context and Rationale
- Angola maintained one of the world’s most extensive fuel subsidy regimes, keeping gasoline, diesel, kerosene, and LPG prices low.
- Subsidies cost the government approximately 3 percent of GDP at their peak as a share of national income in 2021.
- Subsidy fiscal cost peaked at $4.3 billion in 2022.
- Most benefits were captured by wealthier households: the top 20 percent consumed roughly two-thirds of subsidized fuel, almost 25 times as many subsidies as the poorest 20 percent.

### Reform Design and Implementation
- A three-year fuel subsidy reform (2023–25) aimed to align domestic fuel prices with international levels, reduce the subsidy bill, and redirect resources to targeted social support.
- Key policy steps:
  - June 2023: gasoline prices nearly doubled.
  - Diesel prices increased incrementally three times between April 2024 and July 2025.
- Despite increases, by end-2025 diesel prices rose by 167 percent (from $0.16 per liter to $0.43 per liter) but remained below international market prices (about $1.2 per liter).

### Fiscal Impact and Decomposition of Savings
- Estimated cumulative reduction in fuel subsidies between end-2022 and end-2025: $2.2 billion U.S. dollars or 1.4 percentage points of GDP.
- Annual decomposition of the cumulative decrease:
  - 55.8 percent: $1.2 billion U.S. dollars or 0.4 percentage points of GDP occurred in 2023.
  - 19.4 percent: $0.4 billion U.S. dollars or 0.5 percentage points of GDP occurred in 2024.
  - 24.8 percent: $0.6 billion U.S. dollars or 0.6 percentage points of GDP occurred in 2025.
- Box 1 fiscal accounting highlights:
  - Fuel expenditure reduced by Kz312 billion (from Kz1.75 trillion to Kz1.43 trillion) in nominal values during 2023–25.
  - Fuel expenditure relative to GDP declined from 3.8 percent of GDP at end-2022 to 1.6 percent of GDP at end-2025 (a 1.4 percentage point reduction).
- Decomposition of drivers of fiscal savings (percentage points of GDP):
  - Reduction in fuel consumption intensity per unit of GDP: 1.2 percentage points of GDP (largest contributor).
  - Decline in world fuel prices: 0.9 percentage points of GDP.
  - Change in fuel subsidy rate: 0.4 percentage points of GDP.
  - Forgone additional savings from not passing on full exchange rate depreciation to pump prices: 1.1 percentage points of GDP (i.e., the government saved less than it could have).

### Macroeconomic and Fiscal Repercussions
- Inflation rose sharply, reaching 20 percent by end-2023, driven by higher fuel prices and currency depreciation.
- Estimated average annual budget space made available: approximately $2.2 billion U.S. dollars for social programs and infrastructure (noting that complete fiscal benefits depend on finishing price alignment and inflation management).
- Improved transparency and a leaner subsidy bill contributed to deficit reduction, although subsidy expenses continued to outpace health and education allocations until recently.

### Communication Strategy, Public Response, and Political Economy
- Government conducted national campaigns explaining rationale and benefits, emphasizing savings would fund social programs; skepticism persisted due to historical distrust.
- Urban populations, especially transport sector workers, reacted strongly leading to strikes and unrest.
- Shortcomings included timing, reach, and transparency of communications and delayed rollout of mitigation measures.
- Angola prioritized improving communication through early stakeholder engagement, simpler messaging, emphasis on beneficiaries, and realistic expectations.

### Mitigation Measures and Social Protection: Programs, Outcomes, and Challenges
- Fuel Cards
  - Status: Discontinued shortly after launch due to substantial upfront cost.
  - Outcome/Challenge: Early fiscal savings were less than cost; launch described as disastrous and discontinued.
- Preferential Fuel Rates
  - Target: Agriculture, fisheries, public transport.
  - Outcome: Helped moderate food price increases and supported jobs.
  - Challenge: Logistical delays hindered timely distribution, especially in urban centers.
- Social Passes (“Gira Mais”, “Bilhetica”)
  - Target: Disabled individuals, elderly, students.
  - Outcome: Piloted in 2 provinces; now 343,000 passes distributed across 6 provinces.
  - Challenges: Digital integration issues, governance changes at “Teco”, bus acquisition delays; rollout slowed; expansion to tertiary education students planned.
- National Employment Fund (FUNEA)
  - Objective: Aid job placements for recent graduates and unemployed workers affected by higher costs.
  - Design notes: Presidential Decree no. 133/23; initial capitalization approximately set for Kz590 billion with immediate availability of Kz25 billion.
  - Outcome/Challenge: Remains underfunded and ineffective; capitalized twice with budgetary resources of Kz10-11 billion each; expanded deployment beyond fuel-price mitigation reduced effectiveness.
- Project “Engila”
  - Funded by the World Bank to enhance governance of local administration and improve basic public service delivery, leveraging existing projects for efficiency and value for money.
- Kwenda Cash Transfers
  - Design: Quarterly payments to offset rising costs.
  - Outcome: Expanded to over 1.4 million predominantly rural families.
  - Challenge: Limited urban coverage and implementation challenges affecting sustained outreach.

### Lessons from Angola’s Experience (2023–25)
- Short-Term priorities:
  - Expand urban cash transfers.
  - Expand public transport vouchers.
  - Provide tax relief on essentials.
  - Intensify transparent communication and stakeholder engagement.
  - Synchronize adjustments of fuel prices and mass transportation administered fares.
- Medium-Term priorities:
  - Institutionalize automatic fuel pricing mechanisms.
  - Strengthen social safety nets.
  - Reprioritize spending toward health, education, and infrastructure while embedding fiscal discipline.
- Ongoing priorities:
  - Maintain continuous engagement.
  - Monitor social impacts.
  - Collaborate regionally.
  - Adapt policies based on evidence.

### Comparative Insights from Other Countries
- Ghana (2005, 2013)
  - Mitigation: Visible social spending (eliminated fees for state primary/secondary schools; increased public bus fleet).
  - Outcomes: Built public acceptance by showing fuel savings funded education; PSIA before reform highlighted distributional effects.
- Indonesia (2005, 2014)
  - Mitigation: Direct Cash Transfers (BLT) to 19M+ households; kerosene-to-LPG conversion.
  - Outcomes: Shifted benefits to cash-in-hand; reduced fiscal deficit by $15B in 2015.
  - Lesson: Timing and speed—aligning hikes with low international oil prices or delivering cash before hikes prevents backlash.
- Mozambique (2012–2017)
  - Mitigation: Targeted transport subsidies ("tickets modérateurs") and increased social spending by 19%.
  - Outcomes/Lessons: Prevented cascading urban transport inflation; depoliticize pricing via Automatic Fuel Pricing Mechanism (AFPM).

_Italic line: Source: Angolan authorities' data, Global Petrol Prices, IMF Fossil Fuel Subsidies Data: 2025 Update, IMF staff calculations, and referenced documents and tables within the source PDF._

### 14.      Public investment surged post-2006 but declined after the 2014 oil price shock even as

### 14.      Public investment surged post-2006 but declined after the 2014 oil price shock even as

### Public investment trends and efficiency gap
- Public investment surged after 2006 but declined following the 2014 oil price shock.
- External financing has been significant but has shifted from concessional to commercial loans.
- Public-private partnerships (PPPs) are minimal and underutilized.
- The spending efficiency gap relative to peers is widening (Figure 4).
- Premium must be placed on spending smarter to achieve greater efficiency gains and meet development objectives.

### 2019 Public Investment Management Assessment (PIMA) — scope and method
- The 2019 PIMA evaluated 15 institutions across three phases:
  - (i) planning of sustainable investment across the public sector,
  - (ii) allocation of investment to the right sectors and projects,
  - (iii) implementation of investment projects to deliver productive and durable public assets.
- Each institution was assessed on both institutional strength (organization, policies, rules and procedures on paper) and effectiveness (degree to which the intended purpose is being achieved in practice).

### 2019 PIMA — key findings for Angola
- Institutional design of public investment management (PIM) comparable to peers, but effectiveness low.
- Assessed as strong on:
  - fiscal rules and targets,
  - project appraisal,
  - asset monitoring.
- Assessed as weak on:
  - budgeting,
  - project selection,
  - procurement,
  - funding availability.
- Effectiveness generally low, especially in budgeting and procurement.
- Significant issues highlighted:
  - Absence of a systematic operational Medium-Term Fiscal Framework (MTFF), undermining long-term fiscal planning and resource allocation.
  - Poor enforcement of project appraisal processes and insufficient risk assessment practices.
  - Inadequate multi-year budgeting practices and limited funding for maintenance.
  - Procurement processes heavily dominated by exceptions rather than competitive tendering.
  - Weak fiscal risk management regarding State-Owned Enterprises (SOEs) and Public-Private Partnerships (PPPs).
  - Fragmented IT systems and limited human capacity, impeding efficient project management and oversight.
- These weaknesses contribute to Angola’s widening spending efficiency gap relative to peers (Figure 4) and underscore need for comprehensive PIM reforms (Monteiro et al., 2021).

### PIMA Action Plan and PFM Action Plan objectives (2021 and 2025)
- The Angolan government adopted the PIMA Action Plan and the subsequent Public Finance Management (PFM) Action Plan in 2021 and 2025, respectively.
- Action plans aim to close gaps in appraisal and selection, budgeting, procurement and funding, IT systems, project and risk management effectiveness. Specific objectives include:
  - Funding Availability:
    - Amend legal framework so only projects with secured funding are budgeted.
    - Exceptions apply solely to projects reliant on treasury liquidity that meet strict criteria and clearly justify necessity, viability, and funding sources.
  - Project Appraisal and Selection:
    - Introduce objectives for clear criteria and stronger oversight for systematic, transparent project evaluation.
  - Comprehensive Cost Estimation:
    - Require full project cost estimates — including multi-year and maintenance costs — before budget approval.
  - Fragmented IT systems:
    - Integrate the Public Investment Project Management System (“Sistema de Gestão de Projectos de Investimento Público” (SIGPIP)) with the Integrated State Financial Management System (“Sistema Integrado de Gestão Financeira do Estado” (SIGFE)) to enhance project management, oversight, and public transparency.
  - Pipeline Management and Risk Assessment:
    - Mandate annual removal of inactive projects, regular publication of execution reports, and systematic risk assessment using a risk matrix to strengthen pipeline discipline and fiscal oversight.
- Footnotes in source:
  - The PFM action plan remains to be finalized and approved. Implementation is expected to start in the second half of 2026.
  - Direção Nacional de Investimento Público 2022; Direção Nacional de Investimento Público, Ministério das Finanças 2021; Ministério das Finanças 2025.

### Progress, implementation gaps, and capacity challenges
- Legislative and regulatory reforms have progressed, including approval of the 2025 PIM regulation and incipient institutionalization of the MTFF and limited fiscal risk coverage in the budget.
- Implementation lags in building capacity, fully applying existing rules, and achieving consistent, practical results.
- Practical implementation and measurable improvements in project planning, execution, oversight, and spending efficiency remain limited despite action plans.
- Limited progress in project appraisal enforcement, IT integration, and fiscal risk assessment highlights need to focus on building capacity and enforcing reforms in practice.
- A Ministerial reform in 2024 moved DNIP from the Ministry of Finance to the Ministry of Planning, posing additional challenges for capacity building, gatekeeping by the Ministry of Finance, and coordination between the Ministry of Planning and Finance in PIM oversight.

### Lessons from peers and comparative insights for PIM
- International evidence: efficient public spending can yield up to one-third more value, with potential output gains up to 11 percent in emerging economies (IMF, 2025a).
- Redirecting funds toward infrastructure, education, health, and R&D, while closing efficiency gaps, is critical for Angola’s growth and equity.
- Relevant peer experiences:
  - Rwanda:
    - Efficiency gains linked to streamlined procurement and integration of digital tools for financial tracking under broad-based PFM reforms (IMF, 2025a).
    - Achieved significant improvements in service delivery and infrastructure despite public expenditure levels below regional average.
    - Key factors: robust monitoring and evaluation systems, commitment to transparency.
  - Togo:
    - Enhanced outcomes via rigorous project appraisal mechanisms and multi-year fiscal planning.
    - Adoption of PIMA framework strengthened project selection criteria and cost-benefit analyses.
    - Reforms included institutionalization of MTEF and regular publication of project performance reports (IMF, 2025a).
  - Estonia and Sweden:
    - Institutionalized medium-term budgeting processes improving fiscal discipline and predictability.
    - Estonia’s digital government infrastructure supports transparent and integrated budget planning.
    - Sweden’s fiscal framework mandates compliance with multi-year budget ceilings; OECD reviews note these approaches help prevent budget overruns and ensure capital projects are fully funded over lifecycle (OECD, 2022; OECD, 2025).
- Key lessons: enhancing efficiency, strengthening governance and institutions, and adopting medium-term fiscal planning are critical to achieve higher returns on public investment.

### Domestic revenue mobilization — context and challenges
- Angola’s fiscal health relies heavily on oil revenues, complicating sustainable revenue mobilization and underscoring urgency of non-oil domestic revenue mobilization.
- Overall revenue collection as a share of GDP has been in a secular decline over the past couples’ decades and is now lower than peers’ median levels (Figure 5).
- Oil revenues are declining due to over-sweetening the oil sector’s fiscal regime incentives aimed at placating adverse effects of aging and marginal oil fields on production levels.
- Non-oil tax collection constrained by:
  - a narrow base,
  - administrative bottlenecks,
  - a dominant informal sector (approximately 78 percent of employment).

### Recent reforms and revenue administration
- Authorities have streamlined tax codes and advanced digitalization through mandatory e-invoicing and tax filing to boost compliance and collection.
- Significant capacity development (CD) resources have been allocated to revenue administration for improved compliance, risk-based inspections, auditing, and enforcement.
- Joint internal tax and customs authority (AGT) underwent internal governance restructuring to adapt to pressing challenges.
- AGT achieved significant gains since 2018, notably:
  - Organizational and governance reforms,
  - Creation of the Large Taxpayers Office,
  - 2022 deployment of a fully integrated Tax Management Platform automating all tax functions,
  - Introduction of mandatory e-invoicing, e-fillings, notifications, and fully digitalized tax submission across all major tax categories and taxpayer segments,
  - Legislation to expand digitalization beyond AGT to use third-party data from other public and private sector entities.
- Next step recommended in source: create a Data Warehouse (DW) to analyze large data sets for risk analysis, information cross-matching and tax intelligence (Pecho et al., 2023).
- Advances in fighting corruption limited amid VAT fraud scandal uncovered in early 2025 involving a scheme to fraudulently obtain VAT reimbursements from the AGT (Lusa - Business News 2025).

### Revenue performance indicators and numerical findings
- Yields of tax revenue to tax bases have been declining and remain significantly lower than statutory rates.
- Corporate Income Tax (CIT) collected from the non-oil sector in 2024 is only 9.3 percent of the estimated profit share of non-oil GDP (as opposed to the standard statutory CIT rate of 25 percent) (Table 3).
- CIT collected in the non-oil sector to the estimated profit share of non-oil GDP excluding agriculture has been relatively stable.
- CIT collected from the oil sector in 2024 was about 25 percent of the estimated profit share of oil GDP, a significant decline from 2022.
- Value-added tax (VAT) revenues as a share of both imports and consumption have been declining and are significantly below peers.
- VAT collected in 2024 is:
  - 2.3 percent of consumption,
  - 9.1 percent of imports of goods and services.
- Statutory and observed rates and yields (Table 3):
  - A. Corporate Income Tax (CIT) 1/ — Statutory Rate: 25
    - Oil sector (% of profits): 29.5 56.8 29.4 25.8
    - Non-oil sector (% of profits): 12.1 11.6 9.4 9.1
    - Non-oil sector excl. agriculture (% of profits): 13.2 13.1 13.2 13.0
  - B. Value Added Tax (VAT) — Statutory Rate: 5~14
    - VAT (% of consumption): 4.3 3.9 3.1 2.3
    - VAT (% of imports of goods and services): 13.0 13.6 11.5 9.1
- Source notes:
  - The standard VAT rate in Angola has been 14 percent since 2019. The government introduced reduced rates (7 percent for a wide range of consumption goods and services and 5 percent for certain food products and agricultural inputs) since 2021 (effective January 1, 2022).
  - Profits for oil and non-oil sectors are assumed at 50 percent and 40 percent of sectoral value added, respectively. The 2012 input-output matrix calibrated by Haddad et al. (2019) and updated to 2021 nominal values in Cravo et al. (2022) show much higher profit shares, implying that tax yields may even be lower.

### Tax policy, incentives, and shortcomings
- Angola introduced several tax incentives through the Fiscal Incentives Code (“Código de Beneficious Fiscals” (CBF)) and the 2022 VAT reform.
- AGT estimates Kz3 trillion in fiscal benefits were granted to firms in preferential non-oil sectors from 2018–24, with Kz1.5 trillion in 2024 alone.
- The latest CBF amendment:
  - Keeps all CIT exemptions and the contractual regime,
  - Leaves tax incentives for MSMEs unchanged,
  - Retains startup CIT exemptions and reduced rates, investment tax credits, and capital gains deductions, focusing on cost-based incentives.
- The 2022 VAT reform expanded reduced or zero rates for goods and services, further lowering non-oil revenue yields.
- New PIT and CIT codes aim to shift from a schedular regime to a unified PIT and consolidate and simplify corporate income taxation.
- Remaining shortcomings:
  - No inflation adjustment,
  - Some schedular fragmentation continues,
  - Withholding rates are non-final,
  - Marginal rates and progressivity unchanged,
  - Health and education deductions became more generous refundable credits (contrary to best practice),
  - Capital gains are not withheld,
  - Annual filing still needed for most taxpayers,
  - CIT rates remain fragmented (general 25 percent rate, 10 percent reduced rate for certain sectors, 35 percent rate for others),
  - Code does not include Qualified Domestic Minimum Top-up Tax (QDMTT) rules or reference OECD GloBE standards.

### Lessons from peers and policy implications for revenue mobilization
- Tax potential varies by country but can increase with improved institutional quality; revenue gains are sustainable when reforms are sequenced and continuous rather than one-off (Baer et al. 2025).
- Strengthening tax policy, boosting administrative capacity, integrating the informal sector, and leveraging digitalization are critical.
- Comparative experiences show sustained, comprehensive reforms can raise tax-to-GDP ratios above the 15 percent benchmark needed for sustainable development (Baer et al. 2025).
- Policy priorities suggested by comparative lessons:
  - Base broadening and simplification, rationalizing exemptions, and modernizing property tax.
  - Reducing bureaucratic barriers to help informal businesses formalize and expand tax registry.
  - Improved compliance via simplified regimes, incentives, enhanced administration, risk-based management, targeted audits, digital tools, and staff training.
  - Emphasis on transparency, anti-corruption, and customs reform.
  - Continuous improvement with diagnostics, strategic planning, leadership, stakeholder engagement, and regular monitoring (Baer et al. 2025; IMF 2025b).

*Source: Angolan authorities' data and IMF staff calculations, as presented in the original chapter.*

### 37.      Key lessons are that Angola can significantly boost domestic revenues through a blend

### sipea2026091 - 37.      Key lessons are that Angola can significantly boost domestic revenues through a blend

### Key lessons and overall strategy
- Angola can significantly boost domestic revenue through a blend of quick wins and structural reforms.
- Combine quick wins—such as tightening exemptions, digitalization, and targeted enforcement—with deeper reforms like modernizing tax systems and building capacity.
- Adopt a tailored, phased approach to reduce oil dependence and raise the tax-to-GDP ratio.
- Enhancing transparency, fairness, and public services improves taxpayer morale and voluntary compliance, creating a positive feedback loop supported by international evidence.

### Elements for improved tax design (summary of table)
- Tax expenditures (exemptions, holidays)
  - Current issue: Tax expenditures consume 20 3–28 percent of tax revenue in SSA (no data for Angola).
  - Suggested improvement: Rationalize tax expenditures.
  - Recommendation: Rationalize and reduce exemptions and holidays in the PIT, CIT, Fiscal Incentives Code amendment or “amenda de Código de Beneficious Fiscals” (CBF).
- Investment incentives
  - Current issue: Inefficient full exemptions.
  - Suggested improvement: Replace with investment credits and accelerated depreciation.
  - Recommendation: Rationalize and reduce incentives. Move toward a uniform tax regime with accelerated depreciation. International taxation challenges include low withholding rates on non-resident payments and weak thin capitalization rules. Reference OECD GloBE standards.
- Value-Added Tax (VAT)
  - Current issue: Exemptions, compliance issues.
  - Suggested improvement: Reduce exemptions, enhance compliance.
  - Potential revenue impact: Potential revenue increases approximately 2.3 percent of GDP.
  - Recommendation: Expand VAT coverage on imports to include customs duties and related taxes, lower small taxpayer thresholds gradually, limit exemptions on basic goods, and align reduced and zero-rated items with the standard 14 percent rate in the short term, with a goal to raise the standard rate over time.
- Excise taxes
  - Current issue: Underutilized.
  - Suggested improvement: Expand on goods with health/environmental externalities.
  - Recommendation: Shift the Special Consumption Tax (IEC) from ad valorem to specific excise taxes with stronger enforcement to maximize potential for health and revenue benefits.
- Property taxes
  - Current issue: Underused progressive tax.
  - Suggested improvement: Digital property registries can improve collection.
  - Recommendation: Urban property tax (IPU) revenue is minimal. Aim to broaden the base and improve compliance.
- Personal Income Tax (PIT)
  - Current issue: Complex regimes, deductions.
  - Suggested improvement: Simplify regimes, rationalize deductions.
  - Recommendation: Revenue is low due to low top rate and numerous exemptions. Raise marginal rates and thresholds, simplify brackets, adjust thresholds for inflation, implement capital gains tax withholding, remove deductions for health and education, and eliminate bracket cliffs.
- Import tariffs
  - Current issue: Inefficiency and inequality.
  - Suggested improvement: Should be phased out with capacity improvements.
  - Recommendation: Customs tariffs remain significant but require simplification and alignment with trade agreements.

### Concluding remarks (policy implications and priorities)
- Angola faces tight fiscal constraints from falling oil revenues, high social needs, and weak infrastructure.
- Recent reforms—fuel subsidy cuts, improved public investment management, and efforts to boost domestic revenue—have helped reduce unsustainable spending and strengthen fiscal frameworks, but important gaps remain.
- Key challenges: subsidy reform is incomplete; investment management lacks effective implementation; tax yields are low due to informality and exemptions.
- Continued reform focus:
  - Pursue completion of subsidy reform and credible mitigation measures to build citizen trust.
  - Strengthen public investment management implementation.
  - Prioritize domestic revenue mobilization through rationalizing tax expenditures, modernizing tax administration, digitalization, and targeted enforcement.
  - Design reforms to be phased and tailored, balancing quick wins with capacity-building measures to ensure sustainable, inclusive growth.

*Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2026/english/sipea2026091.pdf*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2026/english/sipea2026091.pdf_