The challenges of the VAT reform
AMONG the goals of the draft framework law No. 69-19 relating to tax reform is the broadening of the tax base. One of the measures to achieve this involves the extension of the scope of Value Added Tax (VAT) on domestic consumption. This is one of the trade-offs that had to be made by the Government within the framework of the 2023 Appropriations Bill between the revision of the income tax scale and the major VAT reform, these two phenomena having heavy implications on the Treasury´s revenue, except that the Government has just made a commitment, within the framework of social dialogue, to review the income tax scale. The particularity of the Value Added Tax is that there are many sectors that are still out of its scope 36 years after its introduction (April 1, 1986). Several examples of this anomaly can be cited: land, education, agriculture… If, for lawmakers, the widening of the scope of VAT presupposes the liability of one (land, for example) or many of these sectors to VAT, lawmakers will have to rely on the calculations and simulations of the Directorate General of Taxes (DGI) to determine whether the provision can be considered, with what rate and according to what schedule. Furthermore, it should be noted that the retail trade sector is still not subject to VAT below 2 million Moroccan Dirhams (about 200,000 USD) in turnover. The same goes for small service providers with a turnover less than or equal to 500,000 MAD (about 50,000 USD). The second challenge in terms of VAT reform relates to the coexistence of five rates ranging from 0% (exemption without the right to deduct) to 20%, via reduced rates of 7%, 10% and 14% depending on the nature and sensitivity of the products and services. For several years, the Government has been talking about its desire to reduce the number of rates to two, while enshrining the neutrality of the tax and maintaining the exemption of basic products, which constitutes a challenge. Nonetheless, due to the current configuration, it will be difficult to pick up the five rates to bring the range to two. It is obvious that no scenario has been selected for the moment. Will the final choice relate to the abolition of the 10% rate, the merger of the 7% and 10% rates, or 10% and 14%, or even 14% and 20%? All these scenarios will have to be examined on the basis of calculations and simulations which will have to be carried out by the tax administration which has all the necessary data. The Government will therefore have to decide which option it intends to adopt. In any case, the Government still has three years to implement the reform. The framework law on tax reform also recalls the generalization of the right to a refund. This implies that any company generating a VAT credit must get a refund. This is a provision that should not be limited to the entities listed in Article 103 of the General Tax Code, including exporters. “VAT continues to be the most criticized tax by businesses. The continuation of its reform is now a necessity to restore the fundamental principle of its total neutrality, preserve companies cash flow, ensure a coherent development of the formal productive sector, and reactivate investment” , suggests Mohamadi El Yacoubi, President of the Circle of Tax Specialists of Morocco.
Hassan EL ARIF
