(September 8, 2015)

On September 8, 2015, the International Monetary Fund (IMF) published an IMF Staff Discussion Note titled “Fair Taxation in the Middle East and North Africa” on its website.

The document discusses a.o. the following subjects:

·        Executive summary

·        The need for fair taxation

·        The current state of tax systems

o        Well-Established Non-Hydrocarbon Based Tax Systems

o        Hydrocarbon-Based Revenue Systems

·        Recommendations for fairer taxation

o        Well-Established Non-Hydrocarbon Based Tax Systems

o        Hydrocarbon-Based Revenue Systems

·        Addressing resistance to reform

Furthermore the document contains the following Appendices:

·        Tax Revenue by Category, Latest Available

·        MENA: VAT Main Exemptions under Current Laws

·        Middle East and North Africa: Personal Income Tax Brackets

In the executive summary the document states:

“This paper explores how tax systems can be improved to meet demands for more economic fairness in MENA countries. In recent years, IMF policy advice has focused on spending reforms—for example, how reforming energy subsidies can generate resources for pro-poor expenditures. But tax policy can play an important role in creating fairness, by determining how the tax burden is distributed, how much tax revenue is raised, and how taxation is implemented in practice. The analyses and recommendations in this paper are tailored to two distinct groups of countries: those with well-established non-hydrocarbon-based tax systems (mostly oil importers), and those with primarily hydrocarbon-based revenue systems (mostly oil exporters).”

With respect to ways to make taxation fairer the executive summary makes a distinction between MENA countries with well-established non-hydrocarbon-based tax systems and oil-exporting countries that depend primarily on hydrocarbon revenue.

MENA countries with well-established non-hydrocarbon-based tax systems

With respect to MENA countries with well-established non-hydrocarbon-based tax systems, the executive summary states the following:

“MENA countries with well-established non-hydrocarbon-based tax systems should seek to broaden the tax base, eliminate privileged corporate income tax regimes, increase the progressivity of their tax systems (particularly personal income taxes), and strengthen administration. Eliminating exemptions will be key to improving fairness and will facilitate compliance and administration, bringing many informal activities into the open. Reform options include:

·        Consolidating multiple VAT rates and rationalizing exemptions to improve targeting and reduce their cost to budgets.

·        Eliminating corporate income tax exemptions and simplifying the rate structure to level the playing field for businesses and reduce collection costs.

·        Raising the top marginal personal income tax rate (with lower income thresholds), setting three to four rates, and including non-wage earnings (for example, professional and capital income) in taxable income to improve progressivity.

·        Introducing property taxes, other wealth taxes (for example, taxes on inheritances and gifts) in the long term, and excises on certain luxury goods, especially in the absence of an effective personal income tax to improve progressivity.

·        Improving tax and customs administration with the introduction of “customer service,” simplified codes and regulations, and improved human and IT resources to simplify compliance for taxpayers and reduce arbitrary treatment.”

Oil-exporting countries that depend primarily on hydrocarbon revenue

With respect to oil-exporting countries that depend primarily on hydrocarbon revenue, the executive summary states the following:

“Oil-exporting countries that depend primarily on hydrocarbon revenues should leverage the space provided by these revenues to design simple, fair tax systems and the capacity to administer them in ways that can be scaled up over time to introduce a full-fledged range of instruments. Revenues from oil production can be a particularly efficient and politically acceptable form of taxation. But a healthy non-oil tax system also has a critical role to be play in securing resilience of the revenue base (to both oil price movements and, in some cases, expected declines in production), fostering accountability relationships between state and citizen, and providing tools to pure wider efficiency, fairness and macroeconomic objectives. Priorities include:

·        Introducing a low-rate VAT and CIT, preferably to be applied to all companies.

·        Setting up property taxes and excises, or improving existing ones.

·        Formulating plans for the introduction of personal income taxes.”

Click here to be forwarded to the IMF Staff Discussion Note as published on the website of the IMF.

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