Morocco: New Tax Reform In Morocco: Orientations, Objectives And Methods To Be Used

ABSTRACT

Although the Moroccan tax law has undergone many reforms since the 1980s, the coronavirus crisis has highlighted the limits of the Moroccan tax system, mainly on the social level.

In this context, the framework law n° 69-19 relating to the tax reform was "prepared in application of the High Royal Guidelines and on the basis of the recommendations of the National Taxation Conference, held in May 2019", as indicated in the press release from the spokesperson for the Royal Palace.

As part of this reform, which will be implemented over the next five (5) years, the Kingdom has fixed priorities like territorial development, consolidation of user confidence, and attract more and more international investors.

Also, the said new tax reform will be armed by several advantages for investors as like, for example, simplification of tax procedures, reorganization of tax rates, etc.

Key words: Tax Reform, Incentives, Harmonization of Tax Rules, Restructuring of Business Groups, Framework Law n° 69-19.

INTRODUCTION

Recently adopted by the Council of Ministers chaired by His Majesty the King of Morocco, the draft framework law on tax reform is ready to begin its legislative course to enter into force.

This tax reform is characterized by 10 flagship and priority themes which are planned to be implemented within 5 years. In what follows, we will discuss the priorities to be taken into consideration within the framework of this tax reform, the fundamental objectives to be achieved, the implementation methods and the effective date of this framework law.

PRIORITIES TO CONSIDER¹

In order to update the country's tax policy, the Moroccan state has set the following priorities:

• The incentive for productive investments, which bring added value and quality jobs creation. The desired goal is to make Morocco a real investment hub and at the same time ensure the employability of the active and trained population;
• Territorial development and consolidation of spatial justice to boost the establishment of advanced regionalization as the optimal political choice;
• Reducing geographic and social inequalities;
• Openness to international best practices as a benchmark with other developed countries in order to achieve the aforementioned flagship orientations;
• The efficiency and effectiveness of the tax administration and the consolidation of user confidence.

FUNDAMENTAL OBJECTIVES TO BE ACHIEVED WITHIN THE FRAMEWORK OF THIS TAX REFORM²

On the basis of the aforementioned key priorities, this reform aims to achieve fundamental objectives which are detailed as follows:

• Strengthening the State and local authorities' contribution in the financing of economic and social development policies;
• The decrease in the tax burden on taxpayers as the contribution base is broadened;
• Consecration of the tax neutrality principle in matters of VAT through the inclusion of activities which are to date considered outside the scope of VAT, such as agriculture;
• The convergence of preferential regimes with the international norms and standards, and the good tax practices such as OECD standards and European Union best practices;
• Consecration of tax provisions with the law's general rules and the accounting rules in force;
• Encouraging businesses to consolidate their national and international competitiveness;
• The mobilization of savings and their orientation towards productive sectors;
• The gradual implementation of the principle of the individuals' global income's taxation;
• The rationalization of tax incentives according to their socio-economic impact and with regard to the priorities provided for by the framework law;
• Taxes simplification and rationalization for local authorities. Indeed, the new tax reform aims to reduce the number of local taxes, which are currently 17 such as housing tax and hunting license tax, and to make the local taxation more adequate and unified;
• Integration of the informal sector into the structured economy through:
• • The establishment of a simplified and accessible tax system;
  • The development and implementation of an awareness and support program.
• Simplification and adaptation of the tax regime applicable to local activities generating modest income;
• Strengthening the mechanisms for combating tax fraud and tax evasion;
• The convergence of local government tax rules and their harmonization with those governing state taxation, as well as the grouping of taxes relating to economic activities and those relating to real estate.

IMPLEMENTATION METHODS³

The objectives and priority measures implementation will be deployed through the following mechanisms:

• Consecration of the tax neutrality principle, particularly with regard to VAT, being subject to the maintenance of the basic products exemption, which include, in our opinion, those considered by the Moroccan Tax Code as first necessity products, like flour, sugar, butter.
• This consecration of neutrality will be done through:
• • Enlargement of the scope of VAT neutrality to integrate other activities which were previously not concerned by this tax;
  • Reduction in the number of VAT rates. It should be recalled that the VAT rates in force are 7% (pharmaceutical products, school supplies and canned sardines, etc.), 10% (lawyers and notaries fees, bank operations, etc.), 14% (transport operations and electrical energy, etc.). The 20% rate is the common rate applied for activities / operations to which the other rates are not applicable;
  • Generalization of the right for VAT reimbursement, which is a mechanism allowing companies with VAT credits and which obey certain rules to request a refund through the tax administration.
• Gradual convergence towards a unified corporate tax rate, in particular for industrial activities;
• Gradual decrease of the minimum contribution rates by continuously reducing the rate in order to ultimately remove the minimum contribution;
• Establishment of incentives to promote the development of innovative companies, in particular start-ups and support structures (incubators and accelerators) and aggregators of auto-entrepreneurs;
• Reorganization of the income tax rates' progressive scale applicable to natural persons and the broadening of this tax's base. In this way, a certain tax fairness is sought through the relief of the middle class, who generally has salaries as main income, and which can be taxed up to 38%.
• Adaptation and improvement of the single professional contribution regime to accelerate the informal sector's integration;
• Compliance with the rules of good governance in respect of international taxation by virtue of conventional agreements;
• Convergence of the rates provided for by the preferential regimes, applicable to service and industrial acceleration zones, towards a unified rate;
• Improvement of the contribution, in terms of CIT, of public establishments and enterprises, and of companies exercising regulated activities or in a situation of monopoly or oligopoly, for which the State intends to increase the annual tax rate.
• Guarantee of taxpayers' rights, and those of the administration, particularly in the context of tax litigation;
• Institution of an appropriate tax regime favoring the restructuring of business groups in order to improve their competitiveness and governance;
• Provide appropriate tax measures to:
• • Develop the cultural sector;
  • Promote the social economy;
  • Protect the environment, in particular through the introduction of a carbon tax.

DATE OF EFFECT⁴

The Moroccan State undertakes to:

• Enact the texts necessary for the implementation of the planned measures within 5 years from the framework law's date of entry into force
• Enact, from the said date, the texts necessary for the implementation of the other measures provided for by the framework law N ° 69-19, in a progressive manner.

CONCLUSION

Long awaited, the framework law on tax reform was passed two months before the end of El Othmani government's mandate. It will certainly represent one of the biggest projects inherited by the new government which is currently being formed on the basis of the legislative elections of September 08, 2021's results, and of which the businessman Aziz Akhannouch has been appointed the leader.

Achieving the objectives of this tax reform will therefore depend on the tenacity of the members of the new government. The goal would be to allow Morocco to have a fiscal policy that is more consistent with its status as an African economic power, but which is also fair and efficient, promoting the creation of added value and the reduction of inequalities, and which would ease the pressure on certain taxpayers, in particular employees.

Footnotes

1. Article 2 of the framework law n ° 69-19 on tax reform, official bulletin n ° 7010 - 25 Hija 1442 (5-8-2021)

2. ibid, article 3

3. ibid, article 4

4. ibid, article 19

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