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IMF Calls For Fairer Tax Systems In MENA

by Lorys Charalambous,, Cyprus

14 September 2015

Tax reform is essential for creating more equitable societies in the Middle East and North Africa region, according to a recently published International Monetary Fund report.

The report, Fair Taxation in the Middle East and North Africa, suggests that more tax revenue can be raised by governments in the MENA region for expenditure on infrastructure, healthcare, and education by taxing the rich more and widening tax bases.

MENA countries with well-established tax systems have diversified sources of tax revenues, but lower levels of tax revenues compared to other emerging market and developing economies (EMDCs), the report said. Moreover, MENA tax revenues have been stable for the past two decades, whereas EMDC tax revenues have been on a strong rising trend.

The report outlined a number of recommended reforms for MENA countries with well-established non-hydrocarbon-based tax systems. These include:

  • Consolidating multiple value-added tax (VAT) rates and reviewing exemptions to improve targeting and reduce their cost to budgets.
  • Eliminating corporate income tax (CIT) 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.

On the other hand, 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, the report said. Priorities for these countries include introducing a low-rate VAT and CIT, preferably applied to all companies; setting up property taxes and excises, or improving existing ones; and formulating plans for the introduction of personal income taxes, the IMF said.

TAGS: compliance | tax | economics | business | tax compliance | Saudi Arabia | property tax | fiscal policy | budget | International Monetary Fund (IMF) | corporation tax | excise duty | education | tax reform | regulation | individual income tax | Africa | Middle East | Tax

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