One of the most sought-after reforms in Algeria by experts and companies is tax reform, for better tax justice and also for combating evasion, which deprives the state coffers of colossal sums.
No one can claim to be able to determine the amount of tax evasion because it is largely due to the informal way, which is by definition opaque and therefore immeasurable.
According to the President of the Republic, this sector would amount to 10,000 billion dinars ($ 70 billion). Even part of the amounts owed from legal activities is not recovered, in equally unknown conditions and conditions.
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For professionals and specialists, tax reform means broadening the tax base and reducing tax rates. In the eyes of many experts in the Algerian context, the fight against tax evasion and the gray economy is the only viable way to make banking their activities more attractive to operators.
That’s math. By increasing the number of contributors, we can increase tax revenues and compensate for the shortfall due to lower taxes and duties. When it comes to a structural problem, the stick, in other words sanctions, does not work on its own. You need a carrot and a stick. This means incentives combined with severe sanctions in the event of fraud.
Although measures have been taken to broaden the tax base, their impact remains limited due to sometimes high tax rates. As we are witnessing the regime change of some liberal professions who are protesting against high rates.
In fact, the tax base has never been broadened, except for a few provisions introduced in various financial laws, which, when applied, do not have a significant impact on overall revenues.
Given that Algeria’s budget revenues consist of oil taxation and current taxation (excluding hydrocarbons), the response to any significant drop in oil prices has been, if not an expansion, further pressure on the basis of current taxation through various direct or indirect taxes. .
Although direct increases are not introduced, pressure takes other forms, such as excluding certain actual expenses from deductible expenses.
Current standards make Algeria, at least compared to other Maghreb countries, a country with very unfavorable corporate tax legislation.
A study conducted in 2017 by the specialized company PwC and the World Bank showed that Algerian companies were taxed (taxes and social fees) at 65.6% compared to 60% in Tunisia, 49% in Morocco and only 32% in Libya. The global average for corporate taxation this year was 46%.
It is this choice of equipment that also determines the nature of the most taxes collected in Algeria. These are those deducted at source, ie essentially the Global Income Tax (IRG) and the Corporate Income Tax (IBS).
IRG and VAT: reversing trends
The structure of current tax revenues in Algeria gives two main categories of taxes: taxes on goods and services, including VAT on imports and VAT on domestic activities, and taxes on income and profits, which mainly include IRG and IBS.
The amounts deducted in the first category have always been higher than in the second category, but since the beginning of the 21st century, the trend has begun to reverse.
Reading the various annual reports set up by the Bank of Algeria makes it possible to record this. Between 2002 and 2018, income taxes (IRG) and corporate profits (IBS) increased from 23.2% to 44.7% of total tax revenues. In the same period, miscellaneous VAT (local and import) decreased from 46.3% to 40.2% and customs duties from 26.6% to 11.8% of total revenue.
The Bank of Algeria has already stated this in its 2010 report: “In the period 2004-2010, the relative weight of the main components of tax revenue excluding hydrocarbons developed in the opposite direction (…) If the relative weight of taxes on goods and services and the weight of duties on tax revenue excluding hydrocarbons decreased, resp. from 47.2% and 23.9% in 2004 to 39.6% and 13.9% in 2010, on the other hand, income and profit taxes increased from 25.5% in 2004 to 43.5% in 2010”.
“Corporate income, wages and profits grew relatively faster than taxes on economic activity (taxes on goods and services and customs duties)”, we read again in the Bank of Algeria report.
The Bank of Algeria explained the decline in the share of customs duties in tax revenues “Reduction of rates under various customs agreements with countries or economic unions” while the decline in the relative weight of indirect taxes on tax revenues “Would most likely result from the growing weight of informal activities in national economic activity with the exception of hydrocarbons.”
The inversion of the levy curve is a sign of strong tax evasion and the spread of informality at the expense of the real economy.
Ease of withholding tax
In the last report on the economic and financial situation of the country established by the Bank of Algeria in 2018, the same shares were generally maintained. The percentage of income taxes (IRG) and profits (IBS) decreased slightly over one year (-1.2%), but remained prevalent with 44.7% tax revenues.
Taxation of goods and services increased by 3.4 points (compared to 2017), but tariffs continued to fall (11.8% compared to 13.9% in 2017), due to the duty exemption on imports of vehicles with CKD, she explained. Bank of Algeria. other.
“The low relative weight of indirect taxation compared to direct taxation in 2018 and its decline from 2002 to 2015, in clear contrast to the increase in value added in non-hydrocarbon economic activities, reveals the extent of tax evasion and the relative inefficiency of tax collection”, warned the Bank of Algeria in its 2018 report.
In addition to the extent of tax evasion, the Bank of Algeria report also emphasized the easier to be recovered are therefore deducted at source.
“The upward trend in the weight of direct tax wages, which was confirmed in 2018, and the higher share of VAT and other import taxes in indirect taxation reflect the predominance of levies at source, which are much easier to enforce than income taxes and VAT on domestic activities.” analyzed by the Bank of Algeria.
This despite the size of the base for these taxes and “net operating surpluses of companies”noted the Bank of Algeria, she stressed “The urgency of a determined tax reform policy to improve the collection of this type of tax”. The reform that is still waiting four years later.