## 1mrtea2024005-print-pdf

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---

### Background and policy context
- Fiscal anchor under the IMF program: non-extractive primary deficit target of 3.5 percent of GDP per year.
- Key financing objectives: maintain fiscal and debt sustainability, safeguard growth, and protect vulnerable households while financing development needs in education, water and sanitation, electricity, and roads.
- Recent institutional reforms and measures:
  - Replacement of “Impôt Global sur le Revenu (IGR)” with a schedular income tax (since 2013 reforms).
  - New customs code adopted in 2017.
  - General tax code revision in 2019 introducing CIT and IBAPP, strengthened taxation of capital gains, simplified tax regime for firms with turnover between MRU 3 million and MRU 10 million, and reduced depreciation period for IT equipment.
  - Tax Policy Unit operationalized in 2024.
  - Mandatory CIT declarations for firms (including those with tax holidays) introduced in 2023.
  - Revision of Nouadhibou Free Zone Law in July 2024.
- Annual tax expenditures reporting since 2017; continuous improvements to methodology.

### Evolution of revenue mobilization and key statistics (2013–2023)
- Total revenue:
  - Averaged around 21 percent of GDP before 2019.
  - Increased to 24.5 percent of GDP in 2022, driven mainly by non-tax resource revenue.
  - Dropped to 22.5 percent of GDP in 2023.
- Tax revenue:
  - Increased from 12.2 percent of GDP in 2020 to 14.1 percent of GDP in 2022.
  - Decreased to 13.3 percent of GDP in 2023, mainly due to CIT and taxes on international trade.
- Non-tax resource revenue in 2022 included dividends from Société Nationale Industrielle et Minière (SNIM) at approximately 3.1 percent of GDP.
- Main revenue shares:
  - Consumption and income taxes contribute on average more than 60 percent of total revenue.
  - Consumption taxes (VAT) are the largest contributors to tax revenue across the period.

### Comparative performance vs. peers (2021 and 2022)
- 2021:
  - Mauritania tax-to-GDP ratio: 13.7 percent of GDP.
  - Peers average (2021): 14.3 percent of GDP.
  - LICs average (2021): 14 percent of GDP.
- 2022:
  - Mauritania collected 14.1 percent of GDP in tax revenue.
  - Peers average in 2022: 14.9 percent of GDP.
  - LICs average in 2022: 13.6 percent of GDP.
- Structure:
  - Mauritania relies more on indirect taxes (VAT) and less on taxes on income (CIT, PIT, capital gains) compared with peers such as Tunisia, Morocco, Ghana, and Burkina Faso.

### Key tax rates and revenue indicators (Mauritania)
- PIT:
  - Rate (percent): 40
  - Revenue (percent of GDP): 1.7
- CIT:
  - Rate (percent): 25
  - Revenue (percent of GDP): 2.2
  - CIT-Productivity (percent): 8.9
- VAT:
  - Rate (percent): 16
  - Revenue (percent of GDP): 3.9
  - C-efficiency (percent): 35.3

### Efficiency observations
- CIT:
  - Mauritania’s CIT revenue of 2.2 percent of GDP ≈ peers’ average of 2.1 percent of GDP.
  - Statutory CIT rate (25 percent) below peers’ average (27.1 percent), yielding higher CIT productivity in Mauritania.
- VAT:
  - VAT C-efficiency: 35.3 percent (Mauritania) vs. 27.5 percent (peers average).
- PIT:
  - Despite a top PIT rate of 40 percent (8 percentage points above peers), Mauritania collects considerably less PIT revenue than peers (37.4 percent less).

### Tax expenditures and coverage
- Authorities’ estimate for 2022 tax expenditures: MRU 7.7 billion.
  - Equivalent to 2.1 percent of GDP, 14 percent of total tax revenue, and 7 percent of total expenditure.
  - Authorities’ estimate likely underestimates total tax expenditures as it does not cover all taxes and derogatory measures.
- VAT expenditures in 2022: 0.94 percent of GDP, or 22 percent of collected VAT revenue (authorities’ assessment).
- Of 710 measures evaluated in 2022 tax expenditures assessment, 394 relate to VAT.
- More than 75 percent of household food consumption is exempt from VAT; exemptions often benefit wealthier households.

### Tax potential, tax gap, and tax effort (SFA GTRE results)
- Estimated tax potential (2022): 24.2 percent of GDP.
- Actual tax collection (2022): 14.1 percent of GDP.
- Tax gap (potential minus actual): 10.1 percent of GDP in 2022.
- Tax effort (actual / potential): 58 percent in 2022.
- Peer and LIC averages:
  - Peers tax potential average: 21.4 percent of GDP.
  - LICs tax potential average: 20.7 percent of GDP.
- Mauritania has a relatively high tax potential but one of the largest tax gaps among peers (only Ghana and Guinea-Bissau larger).

### Fiscal impact scenarios
- Reducing the tax gap by one third over the medium term would:
  - Generate additional tax revenue of 3.4 percent of GDP.
  - Increase Mauritania’s tax effort to 72 percent.
- Illustrative uses of additional revenue:
  - Finance at least 35 percent of the cost of a 1,500 km electrical line connecting Mauritania to Mali (project cost at 9.1 percent of GDP in 2023).
  - Increase spending in health and education by about 86 percent of their 2023 level (at 3.9 percent of GDP).

### VAT reform potential and measures
- VAT revenues in 2022: MRU 14.8 billion, or 4.1 percent of GDP (text) / Table: 3.9 percent of GDP.
- VAT C-efficiency: estimated at 35 percent (text) / 35.3 percent (table).
- A 100 percent VAT C-efficiency would generate MRU 11.7 billion, implying an estimated VAT gap of around 7.6 percent of GDP.
- Potential gains:
  - Improving VAT C-efficiency to 48 percent (EMDE average) without changing the rate would generate additional VAT revenue of 1.5 percent of GDP.
  - Raising C-efficiency to 48 percent would yield VAT revenue of 5.6 percent of GDP, contributing substantially to closing the overall tax gap by 3.4 percent of GDP.
- Sources of VAT revenue loss:
  - More than 75 percent of household food consumption is exempt from VAT.
  - Exemptions for private health services and certain medicines found to favor wealthier households.
- Measures to strengthen VAT:
  - Repeal regressive VAT exemptions and accompany repeal with targeted social spending to protect vulnerable households.
  - Strengthen VAT credit refund mechanism:
    - Current refund conditions are restrictive; each refund is subject to accounting audit, causing carry forward credits and incentivizing exemptions.
    - Possible measures: reverse charge, notional VAT debt for exporters, and strategies to limit VAT fraud risk.

### Consumption tax scope, revenue and environmental trade-offs
- Current coverage: limited range of products (examples: mineral water, cement, iron bars, tobacco, milk) and applies only to imported products.
- Practical outcome: functions as a protection mechanism for local industry rather than a comprehensive excise tax system.
- Implementation gaps: consumption tax on plastic bags is included in the general tax code but not applied by customs.
- Estimated revenue potential: extending the consumption tax to certain goods (motor vehicles, plastic bags, sugar-sweetened beverages) would generate a tax revenue gain of at least 0.30 percent of GDP.
- Environmental co-benefits: taxing harmful products could internalize negative externalities by reducing consumption through higher prices.
- Motor vehicle policy nuance:
  - Fuel identified as the primary pollutant; vehicle taxation should be balanced with fuel tax/carbon tax policies.
  - Proposed approach: implement a moderate, age-based tax on motor vehicles coupled with a carbon tax.
- Recommendation: conduct a thorough analysis to determine the list of products to be taxed and the nature (specific or ad valorem) and level of rates by product type.

### Corporate Income Tax, sector regimes and investment incentives
- CIT reforms since 2013 have aligned the Mauritanian CIT with best practices.
- Multiple derogatory regimes grant CIT exemptions for periods ranging from 3 to 7 years (mining code, investment code, free zone regime, free points, start-up law).
- Exemptions lead to revenue loss and are regressive—benefiting more profitable firms at the expense of less profitable ones.
- Sector-specific regimes:
  - Fisheries: artisanal fishery uses a simplified turnover-based system; industrial fisheries use a progressive system based on quantities exploited.
  - Telecommunications: special regime taxes turnover at a combined rate of 11 percent composed of 5 percent special tax on telecommunications services, 3 percent contributions to the universal service fund, 1 percent research and development fund, and 2 percent regulation financing; plus specific tax on incoming international calls and an annual numbering fee.
- Recommendation: replace corporate tax exemptions with cost-based incentives (non-refundable tax credits, accelerated depreciation, tax allowances) with clear eligibility criteria and no room for negotiation; allow unused investment tax credits to be carried forward during loss periods.

### Personal Income Tax (PIT) and salary tax issues
- Current salary tax: progressive tax rate capped at 40 percent; generated MRU 5.65 billion in revenue in 2022 (1.6 percent of GDP).
- Private-sector employers pay around 99 percent of salary tax revenues.
- Low public sector contribution suggests significant portion of civil servants' remuneration is not taxed.
- Progressivity flaws:
  - 60 percent deduction on the value of benefits in kind is large and allows high earners to avoid highest tax rates.
  - Benefits in kind account for significant recent increases in highly paid civil servants’ salaries.
  - Exemption of a significant share of civil servants’ salaries lacks legal justification under Article 110 of the general tax code.
- Revenue potential from enforcement: effective application of tax law to public sector employees could generate additional tax revenue of up to 0.75 percent of GDP.
- Implementation guidance: reform should be phased to preserve short-term fiscal neutrality and integrated into an overall PIT reform.

### Property taxation
- Current system: five recurring taxes on property—tax on built properties, tax on unbuilt properties, residential tax, communal contribution, contribution on agricultural property (the latter two managed by local collectivities).
- Collection challenges: difficulties in taxpayer identification and management; local reliance on central government transfers reduces incentives for local revenue collection.
- Reform recommendations:
  - Centralize property tax collection under the General Directorate of Taxes (GDT) or the General Property Directorate, especially in major urban areas.
  - Undertake mass titling of land parcels to formalize ownership and enable accurate identification of landowners.
  - Consider significant reduction or temporary suspension of high registration fees to support mass titling.
  - Simplify the property taxation system to improve efficiency and administration.

### Revenue administration and tax arrears
- Systemic issue: fragmented and complex tax system increases non-compliance risk and corruption; taxpayers face uncertainty about applicable regimes.
- Institutional role clarity: reduce number of special regimes and limit discretion in negotiating tax regimes; General Directorate of Taxes (GTD) under the Minister of Economy and Finance (MoEF) should determine tax bases and collect all taxes and levies specified in the General Tax Code and related texts.
- Free Zone administration: MoEF (GDT and GDC) should establish a Memorandum of Understanding with Free Zone authorities to clarify roles and centralize tax and customs administration inside and outside the Free Zone.
- Small business regime: update General Tax Code and Book of Tax Procedures and introduce a simple lump-sum contribution for small businesses; current flat-rate turnover declaration system is inefficient and burdensome.
- Tax arrears:
  - Stock and flow of arrears remain significantly high; 81 percent of arrears are more than two years old due to non-enforced write-off procedures.
  - Large number of small amounts due to lack of a collection threshold and weak control over automatic liquidation.
  - Of 34,757 debtors managed by the tax administration (DGI), 476 SOEs (1.4 percent of total debtors) account for more than 40 percent of tax arrears.
  - Recommendation: implement measures to prevent accumulation of receivables and develop a comprehensive recovery strategy focusing on recent and significant receivables with taxpayer segmentation.

### Customs administration and trade facilitation
- Deferred payment schemes: significant customs arrears stem from deferred payment schemes for extractive industries where import invoices require Ministry of Petroleum, Energy and Mines approval, causing delays and arrears.
- Action required: legal and structural reforms, in collaboration with the Ministry of Petroleum, Energy and Mines, to enforce customs tax arrears collection.
- Exemptions monitoring: improve codification and automated monitoring of tax exemptions and relief initiatives to streamline approvals and enable accurate classification.
- Selectivity and lanes:
  - Current Green Lane allocation: 10 percent (goal: exceed 10 percent for compliant/trusted traders).
  - Current Yellow Lane (documentary controls): 40 percent (goal: reduce).
  - Current Red Lane (physical examination): 40 percent (goal: reduce).
  - Objective: fewer but more thorough physical examinations.
- ASYCUDA valuation controls: implement valuation reference files as a risk-based tool to identify valuation discrepancies for post-release verification by Post-Clearance Audit (PCA) units; create a Blue Lane to route transactions flagged for valuation review to PCA for desk review while releasing goods.
- Post-Clearance Audit (PCA) strengthening:
  - Current PCA staffing is inadequate and reactive.
  - PCA should evolve to include full risk-based transactional audits and systems audits with an annual risk-based audit plan and increased staffing to enable systematic on-site enterprise audits based on risk segmentation.

### Overall fiscal potential and prioritized reform options
- Tax potential: estimated at about 24 percent of GDP.
- Revenue gain estimate: authorities could increase tax revenues by up to 3.4 percent of GDP in the medium term, closing the tax gap by one third under the proposed realistic and feasible reform agenda.
- Prioritized reform options:
  - Reduce VAT exemptions, especially regressive ones.
  - Replace corporate tax exemptions with cost-based tax incentives (non-refundable tax credits, accelerated depreciation, tax allowances).
  - Effectively tax all earned income (public and private wages) gradually in accordance with the legal tax schedule.
  - Simplify the PIT system.
  - Extend consumption tax to local production and to products such as plastic bags, motor vehicles, sugar-sweetened beverages.
  - Simplify tax procedures.
  - Manage tax arrears.
  - Improve tax compliance.

*Source: IMF staff analysis — “IMPROVING TAX REVENUE MOBILIZATION IN MAURITANIA” (November 27, 2024).*

### 1. Tax and Total Revenue Components, 2013-2022 _________________________________ 4

### 1. Tax and Total Revenue Components, 2013-2022

### Background and Policy Context
- Fiscal anchor under the IMF program: non-extractive primary deficit target of 3.5 percent of GDP per year.
- Key financing objectives: maintain fiscal and debt sustainability, safeguard growth, and protect vulnerable households while financing development needs in education, water and sanitation, electricity, and roads.
- Recent institutional reforms and measures:
  - Replacement of “Impôt Global sur le Revenu (IGR)” with a schedular income tax (since 2013 reforms).
  - New customs code adopted in 2017.
  - General tax code revision in 2019 introducing CIT and IBAPP, strengthened taxation of capital gains, simplified tax regime for firms with turnover between MRU 3 million and MRU 10 million, and reduced depreciation period for IT equipment.
  - Tax Policy Unit operationalized in 2024.
  - Mandatory CIT declarations for firms (including those with tax holidays) introduced in 2023.
  - Revision of Nouadhibou Free Zone Law in July 2024.
- Annual tax expenditures reporting since 2017; continuous improvements to methodology.

### Evolution of Revenue Mobilization and Key Statistics (2013–2023)
- Total revenue:
  - Averaged around 21 percent of GDP before 2019.
  - Increased to 24.5 percent of GDP in 2022, driven mainly by non-tax resource revenue.
  - Dropped to 22.5 percent of GDP in 2023.
- Tax revenue:
  - Increased from 12.2 percent of GDP in 2020 to 14.1 percent of GDP in 2022.
  - Decreased to 13.3 percent of GDP in 2023, mainly due to CIT and taxes on international trade.
- Non-tax resource revenue in 2022 included dividends from Société Nationale Industrielle et Minière (SNIM) at approximately 3.1 percent of GDP.
- Main revenue shares:
  - Consumption and income taxes contribute on average more than 60 percent of total revenue.
  - Consumption taxes (VAT) are the largest contributors to tax revenue across the period.

### Comparative Performance vs. Peers (2021 and 2022)
- 2021 comparisons:
  - Mauritania tax-to-GDP ratio: 13.7 percent of GDP.
  - Peers average (2021): 14.3 percent of GDP.
  - LICs average (2021): 14 percent of GDP.
- 2022 level:
  - Mauritania collected 14.1 percent of GDP in tax revenue.
  - Peers average in 2022: 14.9 percent of GDP.
  - LICs average in 2022: 13.6 percent of GDP.
- Structure:
  - Mauritania relies more on indirect taxes (VAT) and less on taxes on income (CIT, PIT, capital gains) compared with peers such as Tunisia, Morocco, Ghana, and Burkina Faso.

### Key tax rates and revenue indicators (Mauritania from Table 1)
- PIT:
  - Rate (percent): 40
  - Revenue (percent of GDP): 1.7
- CIT:
  - Rate (percent): 25
  - Revenue (percent of GDP): 2.2
  - CIT-Productivity (percent): 8.9
- VAT:
  - Rate (percent): 16
  - Revenue (percent of GDP): 3.9
  - C-efficiency (percent): 35.3

### Efficiency observations
- CIT:
  - Mauritania’s CIT revenue of 2.2 percent of GDP ≈ peers’ average of 2.1 percent of GDP.
  - Statutory CIT rate (25 percent) below peers’ average (27.1 percent), yielding higher CIT productivity in Mauritania.
- VAT:
  - VAT C-efficiency: 35.3 percent (Mauritania) vs. 27.5 percent (peers average).
- PIT:
  - Despite a top PIT rate of 40 percent (8 percentage points above peers), Mauritania collects considerably less PIT revenue than peers (37.4 percent less).

### Administrative and legal obstacles to collection
- Factors undermining tax collection:
  - Complex legal and tax system with numerous derogatory regimes (free zones, oil and mining codes, investment code, start-up law, GTA gas project regime).
  - Outdated organizational structure and absence of a modern reform governance framework.
  - Unclear administrative arrangements and lack of cooperation with free zone authorities impair taxpayer management.

### Tax expenditures and coverage
- Authorities’ estimate for 2022 tax expenditures: MRU 7.7 billion.
  - Equivalent to 2.1 percent of GDP, 14 percent of total tax revenue, and 7 percent of total expenditure.
  - Authorities’ estimate likely underestimates total tax expenditures as it does not cover all taxes and derogatory measures.

### Tax potential, tax gap, and tax effort (SFA GTRE results)
- Estimated tax potential (2022): 24.2 percent of GDP.
- Actual tax collection (2022): 14.1 percent of GDP.
- Tax gap (potential minus actual): 10.1 percent of GDP in 2022.
- Tax effort (actual / potential): 58 percent in 2022.
- Peer and LIC averages:
  - Peers tax potential average: 21.4 percent of GDP.
  - LICs tax potential average: 20.7 percent of GDP.
- Mauritania has a relatively high tax potential but one of the largest tax gaps among peers (only Ghana and Guinea-Bissau larger).

### Fiscal impact scenarios
- Reducing the tax gap by one third over the medium term would:
  - Generate additional tax revenue of 3.4 percent of GDP.
  - Increase Mauritania’s tax effort to 72 percent.
- Illustrative uses of additional revenue:
  - Finance at least 35 percent of the cost of a 1,500 km electrical line connecting Mauritania to Mali (project cost at 9.1 percent of GDP in 2023).
  - Increase spending in health and education by about 86 percent of their 2023 level (at 3.9 percent of GDP).

### VAT reform potential and measures
- VAT revenue and efficiency:
  - VAT revenues in 2022: MRU 14.8 billion, or 4.1 percent of GDP (text) / Table: 3.9 percent of GDP.
  - VAT C-efficiency: estimated at 35 percent (text) / 35.3 percent (table).
  - A 100 percent VAT C-efficiency would generate MRU 11.7 billion, implying an estimated VAT gap of around 7.6 percent of GDP.
- Potential gains from improved C-efficiency:
  - Improving VAT C-efficiency to 48 percent (EMDE average) without changing the rate would generate additional VAT revenue of 1.5 percent of GDP.
  - Raising C-efficiency to 48 percent would yield VAT revenue of 5.6 percent of GDP, contributing substantially to closing the overall tax gap by 3.4 percent of GDP.
- Sources of VAT revenue loss:
  - VAT expenditures in 2022: 0.94 percent of GDP, or 22 percent of collected VAT revenue (authorities’ assessment).
  - Of 710 measures evaluated in 2022 tax expenditures assessment, 394 relate to VAT.
  - More than 75 percent of household food consumption is exempt from VAT; exemptions often benefit wealthier households (examples: milk, certain meats, fish, potatoes, local couscous, apples, watermelon, turnips, beet).
  - Exemptions for private health services and certain medicines found to favor wealthier households.
- Measures to strengthen VAT:
  - Repeal regressive VAT exemptions and accompany repeal with targeted social spending to protect vulnerable households.
  - Strengthen VAT credit refund mechanism:
    - Current refund conditions are restrictive; each refund is subject to accounting audit, causing carry forward credits and incentivizing exemptions.
    - Possible measures: reverse charge, notional VAT debt for exporters, and strategies to limit VAT fraud risk.

*Source: IMF staff analysis — “IMPROVING TAX REVENUE MOBILIZATION IN MAURITANIA” (November 27, 2024).*

### 16. Mauritania’s Consumption Tax covers a limited range of products, including mineral

### 16. Mauritania’s Consumption Tax covers a limited range of products, including mineral

### Consumption tax scope and design
- Current coverage: limited range of products (examples: mineral water, cement, iron bars, tobacco, milk) and applies only to imported products.
- Practical outcome: functions as a protection mechanism for local industry rather than a comprehensive excise tax system.
- Implementation gaps: certain advantages (exceptional exemptions or non-application of tax laws) are granted de facto without legal basis (example: consumption tax on plastic bags is included in the general tax code but not applied by customs).
- Policy implication: effective application of tax laws and inclusion of local production in the consumption tax scope would broaden the tax base and increase tax revenues.
- Recommendation: conduct a thorough analysis to determine the list of products to be taxed and the nature (specific or ad valorem) and level of rates by product type.

### Revenue and environmental trade-offs from extending consumption tax
- Estimated revenue potential: extending the consumption tax to certain goods (motor vehicles, plastic bags, sugar-sweetened beverages) would generate a tax revenue gain of at least 0.30 percent of GDP.
- Environmental co-benefits: taxing harmful products could internalize negative externalities by reducing consumption through higher prices.
- Motor vehicle policy nuance:
  - Fuel is identified as the primary pollutant; vehicle taxation should be balanced with fuel tax/carbon tax policies.
  - Proposed approach: implement a moderate, age-based tax on motor vehicles coupled with a carbon tax to discourage import of older, less efficient vehicles and encourage newer, safer vehicles while incentivizing reduced fuel consumption.
- Monitoring: effectiveness should be monitored and adjusted over time to meet fiscal and environmental objectives.

### Corporate Income Tax (CIT) and exemptions
- Reform progress: CIT reforms since 2013 have aligned the Mauritanian CIT with best practices.
- Exemptions challenge: multiple derogatory regimes (mining code, investment code, free zone regime, free points, start-up law, etc.) grant CIT exemptions for periods ranging from 3 to 7 years.
- Distributional and fiscal effects:
  - CIT exemptions lead to revenue loss and are regressive—benefiting more profitable firms at the expense of less profitable ones.
  - Exemptions narrow the tax base and reduce equity in tax burden distribution.
- Recommendation: broaden the CIT base and moderate sector-specific taxation; avoid excessive taxes on production factors or volumes and limit turnover-based taxes.

### Sector-specific regimes and turnover taxation
- Fisheries:
  - Artisanal fishery: simplified turnover-based system.
  - Industrial fisheries: progressive system based on quantities exploited.
- Telecommunications:
  - Special regime taxes turnover at a combined rate of 11 percent, composed of:
    - special tax on telecommunications services: 5 percent
    - contributions to the universal service fund: 3 percent
    - research and development fund: 1 percent
    - regulation financing: 2 percent
  - Additional levies: specific tax on incoming international calls and an annual numbering fee payable by mobile network operators.
- Concern: sector-specific parafiscal taxes and fees can raise production costs, hinder development, and undermine neutrality and fairness of the tax system.
- Recommendation: strengthen the general tax system while moderating sector-specific regimes.

### Cost-based investment incentives
- Priority: favor cost-based incentives to improve CIT efficiency and fairness.
- Examples: accelerated depreciation (already in general tax code), investment allowances, non-refundable investment tax credits linked to investment amounts.
- Design note: allow unused investment tax credits to be carried forward during loss periods to offset future tax liabilities when profitable.
- Governance: eligibility criteria should be clearly defined in the general tax code with no room for negotiation.

### Personal Income Tax (PIT) and salary tax issues
- Current salary tax: progressive tax rate capped at 40 percent; generated MRU 5.65 billion in revenue in 2022 (1.6 percent of GDP).
- Revenue source concentration: private-sector employers pay around 99 percent of salary tax revenues.
- Public sector under-contribution: low public sector contribution suggests significant portion of civil servants' remuneration is not taxed, possibly via unlawful compensation for stagnant wages.
- Progressivity flaws:
  - 60 percent deduction on the value of benefits in kind is large and allows high earners to avoid highest tax rates.
  - Benefits in kind account for significant recent increases in highly paid civil servants’ salaries, leading to unequal taxation for individuals with the same income.
  - Exemption of a significant share of civil servants’ salaries lacks legal justification under Article 110 of the general tax code.
- Revenue potential from enforcement: effective application of tax law to public sector employees could generate additional tax revenue of up to 0.75 percent of GDP (per Rota-Graziosi et al., 2024).
- Implementation guidance: reform should be phased to preserve short-term fiscal neutrality and integrated into an overall PIT reform given political sensitivity.

### Property taxation
- Current system: five recurring taxes on property—tax on built properties, tax on unbuilt properties, residential tax, communal contribution, contribution on agricultural property (the latter two managed by local collectivities).
- Collection challenges: difficulties in taxpayer identification and management; local reliance on central government transfers reduces incentives for local revenue collection.
- Reform recommendations:
  - Centralize property tax collection under the General Directorate of Taxes (GDT) or the General Property Directorate, especially in major urban areas.
  - Undertake mass titling of land parcels to formalize ownership and enable accurate identification of landowners.
  - Consider significant reduction or temporary suspension of high registration fees to support mass titling.
  - Develop and communicate a coherent land and property management strategy.
  - Simplify the property taxation system to improve efficiency and administration.

### Revenue administration: tax administration reforms
- Systemic issue: fragmented and complex tax system increases non-compliance risk and corruption; taxpayers face uncertainty about applicable regimes.
- Institutional role clarity: reduce number of special regimes and limit discretion in negotiating tax regimes; General Directorate of Taxes (GTD) under the Minister of Economy and Finance (MoEF) should determine tax bases and collect all taxes and levies specified in the General Tax Code and related texts.
- Free Zone administration: following the new Free Zone Law, MoEF (GDT and GDC) should establish a Memorandum of Understanding with Free Zone authorities to clarify roles and centralize tax and customs administration inside and outside the Free Zone to prevent double collection.
- Small business regime: update General Tax Code and Book of Tax Procedures and introduce a simple lump-sum contribution for small businesses; current flat-rate turnover declaration system is inefficient and burdensome.

### Tax arrears management
- Severity: stock and flow of arrears remain significantly high; 81 percent of arrears are more than two years old due to non-enforced write-off procedures.
- Small amounts problem: large number of small amounts due to lack of a collection threshold and weak control over automatic liquidation.
- Major sources and debtors:
  - Taxes on wages and salaries and VAT are main sources of unpaid taxes.
  - Of 34,757 debtors managed by the tax administration (DGI), 476 SOEs (1.4 percent of total debtors) account for more than 40 percent of tax arrears.
- Recommendation: implement measures to prevent accumulation of receivables and develop a comprehensive recovery strategy focusing on recent and significant receivables with taxpayer segmentation.

### Customs administration and trade facilitation
- Deferred payment schemes: significant customs arrears stem from deferred payment schemes for extractive industries where import invoices require Ministry of Petroleum, Energy and Mines approval, causing delays and arrears.
- Action required: legal and structural reforms, in collaboration with the Ministry of Petroleum, Energy and Mines, to enforce customs tax arrears collection.
- Exemptions monitoring: improve codification and automated monitoring of tax exemptions and relief initiatives to streamline approvals and enable accurate classification.
- Selectivity and lanes:
  - Current Green Lane allocation: 10 percent (goal: exceed 10 percent for compliant/trusted traders).
  - Current Yellow Lane (documentary controls): 40 percent (goal: reduce).
  - Current Red Lane (physical examination): 40 percent (goal: reduce).
  - Objective: fewer but more thorough physical examinations.
- ASYCUDA valuation controls: implement valuation reference files as a risk-based tool to identify valuation discrepancies for post-release verification by Post-Clearance Audit (PCA) units; create a Blue Lane to route transactions flagged for valuation review to PCA for desk review while releasing goods.
- Post-Clearance Audit (PCA) strengthening:
  - Current PCA staffing is inadequate and reactive.
  - PCA should evolve to include full risk-based transactional audits and systems audits with an annual risk-based audit plan and increased staffing to enable systematic on-site enterprise audits based on risk segmentation.

### Overall fiscal potential and reform gains
- Tax potential: estimated at about 24 percent of GDP.
- Revenue gain estimate: authorities could increase tax revenues by up to 3.4 percent of GDP in the medium term, closing the tax gap by one third under the proposed realistic and feasible reform agenda.
- Prioritized reform options (summary list):
  - Reduce VAT exemptions, especially regressive ones.
  - Replace corporate tax exemptions with cost-based tax incentives (non-refundable tax credits, accelerated depreciation, tax allowances).
  - Effectively tax all earned income (public and private wages) gradually in accordance with the legal tax schedule.
  - Simplify the PIT system.
  - Extend consumption tax to local production and to products such as plastic bags, motor vehicles, sugar-sweetened beverages.
  - Simplify tax procedures.
  - Manage tax arrears.
  - Improve tax compliance.

*Source: IMF chapter text provided in the content unit.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1mrtea2024005-print-pdf.pdf_