## sipea2025132 - 1. Since 2020, the hydrocarbon sector has remained the dominant source of government ## Source details **Canonical URL:** [sipea2025132 - 1. Since 2020, the hydrocarbon sector has remained the dominant source of government](https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025132.pdf) ## Other formats - [Markdown version](/-/media/files/publications/selected-issues-papers/2025/english/sipea2025132.pdf.md) - [Structured JSON version](/-/media/files/publications/selected-issues-papers/2025/english/sipea2025132.pdf.json) --- ### Overview: Hydrocarbon dominance and volatility - Oil and gas generated both tax revenue (corporate income tax) and non-tax revenue (notably royalties and dividends from state-owned enterprises), averaging 67 percent of total revenue over the period. - Key fiscal challenge: high volatility of hydrocarbon-related revenues, which are directly tied to international commodity prices. - Non-hydrocarbon tax revenues have remained stagnant around 10 percent of GDP over two decades. - 2019: non-hydrocarbon tax revenues at 12.3 percent of GDP. - 2024: non-hydrocarbon tax revenues at 10.6 percent of GDP. - Non-hydrocarbon revenues, when expressed as a share of non-hydrocarbon GDP, are significantly more stable than hydrocarbon revenues. - The non-hydrocarbon primary balance deteriorated from -6.9 percent of NHGDP in 2018 to -15.3 percent in 2024. ### Estimating Algeria’s tax potential (methodology and models) - Methodology: regression benchmarking approach building on Benitez et al (2023); baseline Model 1 explanatory variables: GDP per capita, GDP shares of agricultural value added and trade, and government effectiveness. - Model 2 (robustness): adds share of GDP from the extractive sector; interpreted as a lower, minimum tax frontier because it compares Algeria with other fuel-exporting EMEs. - Analysis focuses on non-hydrocarbon tax revenue; hydrocarbon revenues excluded from structural tax potential estimation. - Data: IMF’s World Longitudinal Revenue Database for 163 countries over 1990–2022. ### Estimated non-hydrocarbon tax gap and potential - Model 1 (baseline) results: - Estimated non-hydrocarbon tax gap ranges from 2.0 to 4.1 percent of GDP. - Implied non-hydrocarbon tax potential: 13.5 percent of GDP on average (or 15.9 percent of non-hydrocarbon GDP). - Algeria’s remaining tax gap lower than that of other fuel-exporting countries (example: 2022, 4.1 percent of GDP vs 5 percent) because Algeria’s current tax revenue is higher. - Model 2 results: - Tax gap remains around 2 percent of GDP. - Equivalent to 2.35 percent of non-hydrocarbon GDP. - Interpreted as a lower-bound estimate: even with continued hydrocarbon dominance, estimated potential for non-hydrocarbon tax revenue remains significant at around 2 percent of GDP. ### Where additional revenue could come from (composition and performance) - Overall tax revenue, as a share of GDP, is below the average for non-fuel exporting EMEs and LIDCs; Algeria resembles other fuel-exporting EMEs where extractive revenues dominate. - VAT and CIT are significantly lower in Algeria compared to peer country groups (except fuel-exporting EMEs). - Specific averages (2018–2024): - VAT revenues averaged 3.3 percent of GDP. - Comparison: VAT in non-fuel exporting EMEs reached 6.5 percent of GDP over the same period. - CIT yielded 1.8 percent of GDP in Algeria. - Comparison: CIT in non-fuel exporting EMEs was 3.4 percent of GDP. - Tax expenditures (policy gap): - VAT tax expenditures estimated at about 1.5 percent of GDP in 2023. - CIT-related tax expenditures at 0.24 percent of GDP. - Total tax expenditures on these instruments approximately 1.7 of GDP. - Compliance gap and informality: - Undeclared (informal) economy accounts for approximately 32 percent of total GDP. - Compliance gap further exacerbates the policy gap, likely especially pronounced in CIT collections. ### Indirect taxation: VAT performance and reform potential - VAT weaknesses: - Multiple exemptions and zero-rating plus widespread use of reduced rate (9 percent; standard rate 19 percent) have undermined efficiency. - C-efficiency (ratio of actual to potential VAT revenue): - Averaged 30 percent over 2018–2024 for Algeria. - Comparison: 42 percent in fuel-exporting EMEs; 59 percent in other EMEs. - Trend: C-efficiency fell to 27 percent in 2024. - Administrative complexity: 70 percent of VAT credit refund requests originate from exemptions that permit input tax deductions (i.e., zero-rating). - Loss of VAT neutrality and reduced ability to indirectly tax the informal sector. - Increased regressivity: VAT-related tax expenditures disproportionately benefit higher-income households. - VAT reform actions and estimated revenue impact: - Rationalize exemptions and zero ratings; restrict reduced rate to basic necessities and agricultural inputs. - Address legal and administrative obstacles to timely credit refunds. - Phase out exemptions and zero ratings in the oil & gas and real estate sectors. - Estimated total revenue gain from these VAT reforms: approximately 0.75 percent of GDP (about half of the estimated VAT tax expenditures). ### Excise taxation - Excise revenues averaged 0.9 percent of GDP between 2018 and 2024. - Comparison: 2.2 percent in non-fuel-exporting countries. - Tobacco excise taxes on cigarettes increased in 2025 from 37 to 50 dinars per pack. - Algeria’s excise system includes specific (ad quantum) taxes; selection of excise rates: - Cigarettes/Tobacco: 10–15% (additional), 5% (from 2022), DZD 50/pack (from 2024) - Electronic Cigarettes: 40% - Matches/Lighters: 20% - Beer: 3,971 DZD/hl (fixed), 10% (proportional) - Coffee: 10% - Luxury Goods: Up to 30% - Fuel (Normal): 800 DZD/hl - Fuel (Super/Unleaded): 900 DZD/hl - Diesel: 1 DZD/hl - Scope for expanding excise taxation (fuels, tobacco, alcohol, selected luxury goods) presents short-term revenue gains. ### Direct taxation: CIT structure, SME regime, and reform options - CIT structure and incentives: - Three distinct rates: - Reduced rate of 19 percent for manufacturing activities. - 23 percent for firms operating in construction, public works, hydraulics, tourism, and thermal activities (excluding travel agencies). - Standard rate of 26 percent for all other activities. - Manufacturing companies: reduced 10 percent corporate income tax rate when profits are reinvested. - Deductibility for in-house R&D or innovation partnerships with certified start-ups up to 30 percent of taxable profits. - 2022 Investment Code provides incentives under sectoral, regional, and large-scale structural projects, offering tax holidays for up to ten years depending on the nature and location of the investment. - Challenges: - Complexity from multiple rates and exemptions undermines neutrality, transparency, and revenue potential. - Monitoring and administration difficulties (e.g., different rate for reinvested profits). - Multiple rates weaken sectoral neutrality and increase compliance costs. - CIT revenues stagnant over past decade and overtaken by PIT as a source of revenue. - SME simplified regime (Impôt Forfaitaire Unique – IFU): - Covers about 80 percent of all businesses. - Applies to SMEs with annual revenue below 8 million dinars (approximately USD 61,000). - Rates range from 5 to 12 percent. - Minimum annual payment increased from 10,000 to 30,000 dinars in 2025. - Auto-entrepreneur regime complements IFU for self-employed individuals. - Challenge: encourage growing SMEs to switch to the standard regime. - CIT reform options: - Streamline and uniformize rate structure. - Rationalize tax incentives. - Leverage Pillar Two international corporate tax reform to align investment incentives with the global minimum tax framework and improve minimum business taxation. - Given that investment incentives were changed in 2022, major reforms to incentives may not be advisable in the near term. ### Mining sector fiscal regime and revenue potential - Current revenue from the mining sector is around 0.02 percent of GDP. - Recommendation: introduce a more progressive, profit-based fiscal regime (progressive royalty system) to: - Make the sector more attractive to private investors. - Ensure the government captures a fair share of revenues during periods of high commodity prices. - Note: Commodity prices for phosphates, iron, and zinc respond more directly to sector-specific demand from agriculture and construction; increased mining revenue would not necessarily add to overall revenue volatility. - Fiscal context and constraints: - Pillar Two introduces a minimum effective corporate tax rate of 15 percent for large multinational companies. - Regardless of profitability, every company currently must pay a minimum annual corporate tax of DZD 10,000 (around US $70). ### Personal Income Tax (PIT): performance and reform scope - PIT recent performance: - PIT revenues have been on an upward trend and broadly align with peers. - A revision in 2022 led to lower PIT rates, with many private sector workers falling below the exemption threshold. - The 2022 reform improved PIT progressivity, with no noticeable effect on overall PIT revenue so far—potentially because increases in public sector wages in 2022, 2023, and 2024 offset potential revenue losses. - Redistributive capacity and parameters: - Redistributive capacity (difference between pre- and post-Gini) for Algeria: 4.78. - Basic deduction (LCU): 240,000. - Marginal rate above deduction: 23.00. - Top PIT rate: 35.00. - PIT revenue (in percent of GDP) for Algeria: 3.14. - Simplification recommendations: - Consolidate deductions, limit exemptions, and review special regimes. - Reduce multiplicity of brackets and complexity of deductions and credits to enhance fairness, improve compliance, and support stronger revenue mobilization. ### Property tax and local government finance - The property tax (Taxe foncière) is critical for local government finance but faces structural challenges: - Tax base remains narrow and collection rates are low. - Contribution to total revenue is minimal despite estimates suggesting potential of over 1 percent of GDP. - Administrative property values are significantly out of step with actual market values, undermining local revenue mobilization. - Recommendation: develop a functional property tax system as part of broader tax reform. ### Small and inefficient taxes - Algeria’s tax system includes numerous small taxes that generate limited revenue while imposing fixed administrative costs. - Recommendation: reassess these taxes (e.g., Droits de timbre, Taxe de domiciliation bancaire, Taxe pour usage des appareils récepteurs de radiodiffusion et de la télévision, Taxe de publicité, and three new taxes created by the Loi de finance 2025) to weigh revenue potential versus complexity. ### Tax administration: modernization and arrears recovery - Digitalization and information systems improvements have been made. - Further improvement: introduce a comprehensive risk management framework for major sectors, including oil and gas. - Tax arrears: - Estimated recoverable outstanding tax debts: 1,500 billion dinars (around 4.4 percent of 2024 GDP). - Potential annual recoveries: about 200 billion dinars, or 0.6 percent of GDP. - Recommendation: conduct a Tax Administration Diagnostic Assessment Tool (TADAT) to identify reform priorities and align capacity development; TADAT evaluates nine performance outcome areas with scores from A to D. ### Medium-term revenue strategy and reform sequencing - Potential to increase non-hydrocarbon tax revenues by an estimated 2 to 4 percent of GDP through further tax reform. - Core reform priorities: - Streamline tax rates, particularly in VAT and CIT, to reduce distortions and improve neutrality. - Rationalize tax exemptions and incentives for VAT, CIT and PIT, with clear criteria and limited use. - Enhance design and performance of excise taxes, the property tax, and the fiscal regime for the mining sector. - Sequencing and stability considerations: - Avoid immediate re-opening of recently modified regimes (investment incentives modified in 2022; PIT recently reformed). - Near-term priorities: improvements in VAT, mining taxation, excise taxes, and continued tax arrears recovery. - Medium-Term Revenue Strategy (MTRS) characteristics (typical 4 to 6 years): - Sustained political commitment from formulation to implementation. - Coordinated support among capacity development partners aligned with government leadership and priorities. - A quantified revenue target to support economic and social development. - A comprehensive approach addressing policy, administration, and legal framework interlinkages. ### Structural reforms supporting revenue mobilization - Complementary measures to support tax reform: - Broaden financial inclusion and limit cash use in transactions. - Fight corruption in tax administration and improve transparency. - Reduce the size of the informal sector to support revenue mobilization. *Source: sipea2025132 — https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025132.pdf* ### 1. Since 2020, the hydrocarbon sector has remained the dominant source of government ### sipea2025132 - 1. Since 2020, the hydrocarbon sector has remained the dominant source of government ### Overview: Hydrocarbon dominance and volatility - Oil and gas generated both tax revenue (corporate income tax) and non-tax revenue (notably royalties and dividends from state-owned enterprises), averaging 67 percent of total revenue over the period. - Key fiscal challenge: high volatility of hydrocarbon-related revenues, which are directly tied to international commodity prices. - Non-hydrocarbon tax revenues have remained stagnant around 10 percent of GDP over two decades. - 2019: non-hydrocarbon tax revenues at 12.3 percent of GDP. - 2024: non-hydrocarbon tax revenues at 10.6 percent of GDP. - Non-hydrocarbon revenues, when expressed as a share of non-hydrocarbon GDP, are significantly more stable than hydrocarbon revenues. - The non-hydrocarbon primary balance deteriorated from -6.9 percent of NHGDP in 2018 to -15.3 percent in 2024. ### Estimating Algeria’s tax potential (methodology and models) - Methodology: regression benchmarking approach building on Benitez et al (2023); baseline Model 1 explanatory variables: GDP per capita, GDP shares of agricultural value added and trade, and government effectiveness. - Model 2 (robustness): adds share of GDP from the extractive sector; interpreted as a lower, minimum tax frontier because it compares Algeria with other fuel-exporting EMEs. - Analysis focuses on non-hydrocarbon tax revenue; hydrocarbon revenues excluded from structural tax potential estimation. - Data: IMF’s World Longitudinal Revenue Database for 163 countries over 1990–2022. ### Estimated non-hydrocarbon tax gap and potential - Model 1 (baseline) results: - Estimated non-hydrocarbon tax gap ranges from 2.0 to 4.1 percent of GDP. - Implied non-hydrocarbon tax potential: 13.5 percent of GDP on average (or 15.9 percent of non-hydrocarbon GDP). - Algeria’s remaining tax gap lower than that of other fuel-exporting countries (example: 2022, 4.1 percent of GDP vs 5 percent) because Algeria’s current tax revenue is higher. - Model 2 results: - Tax gap remains around 2 percent of GDP. - Equivalent to 2.35 percent of non-hydrocarbon GDP. - Interpreted as a lower-bound estimate: even with continued hydrocarbon dominance, estimated potential for non-hydrocarbon tax revenue remains significant at around 2 percent of GDP. ### Where additional revenue could come from (composition and performance) - Overall tax revenue, as a share of GDP, is below the average for non-fuel exporting EMEs and LIDCs; Algeria resembles other fuel-exporting EMEs where extractive revenues dominate. - VAT and CIT are significantly lower in Algeria compared to peer country groups (except fuel-exporting EMEs). - Specific averages (2018–2024): - VAT revenues averaged 3.3 percent of GDP. - Comparison: VAT in non-fuel exporting EMEs reached 6.5 percent of GDP over the same period. - CIT yielded 1.8 percent of GDP in Algeria. - Comparison: CIT in non-fuel exporting EMEs was 3.4 percent of GDP. - Tax expenditures (policy gap): - VAT tax expenditures estimated at about 1.5 percent of GDP in 2023. - CIT-related tax expenditures at 0.24 percent of GDP. - Total tax expenditures on these instruments approximately 1.7 of GDP. - Compliance gap and informality: - Undeclared (informal) economy accounts for approximately 32 percent of total GDP. - Compliance gap further exacerbates the policy gap, likely especially pronounced in CIT collections. ### Indirect taxation: VAT performance and reform potential - VAT weaknesses: - Multiple exemptions and zero-rating plus widespread use of reduced rate (9 percent; standard rate 19 percent) have undermined efficiency. - C-efficiency (ratio of actual to potential VAT revenue): - Averaged 30 percent over 2018–2024 for Algeria. - Comparison: 42 percent in fuel-exporting EMEs; 59 percent in other EMEs. - Trend: C-efficiency fell to 27 percent in 2024. - Administrative complexity: 70 percent of VAT credit refund requests originate from exemptions that permit input tax deductions (i.e., zero-rating). - Loss of VAT neutrality and reduced ability to indirectly tax the informal sector. - Increased regressivity: VAT-related tax expenditures disproportionately benefit higher-income households. - VAT reform actions and estimated revenue impact: - Rationalize exemptions and zero ratings; restrict reduced rate to basic necessities and agricultural inputs. - Address legal and administrative obstacles to timely credit refunds. - Phase out exemptions and zero ratings in the oil & gas and real estate sectors. - Estimated total revenue gain from these VAT reforms: approximately 0.75 percent of GDP (about half of the estimated VAT tax expenditures). ### Excise taxation - Excise revenues averaged 0.9 percent of GDP between 2018 and 2024. - Comparison: 2.2 percent in non-fuel-exporting countries. - Tobacco excise taxes on cigarettes increased in 2025 from 37 to 50 dinars per pack. - Algeria’s excise system includes specific (ad quantum) taxes; selection of excise rates: - Cigarettes/Tobacco: 10–15% (additional), 5% (from 2022), DZD 50/pack (from 2024) - Electronic Cigarettes: 40% - Matches/Lighters: 20% - Beer: 3,971 DZD/hl (fixed), 10% (proportional) - Coffee: 10% - Luxury Goods: Up to 30% - Fuel (Normal): 800 DZD/hl - Fuel (Super/Unleaded): 900 DZD/hl - Diesel: 1 DZD/hl - Scope for expanding excise taxation (fuels, tobacco, alcohol, selected luxury goods) presents short-term revenue gains. ### Direct taxation: CIT structure, SME regime, and reform options - CIT structure and incentives: - Three distinct rates: - Reduced rate of 19 percent for manufacturing activities. - 23 percent for firms operating in construction, public works, hydraulics, tourism, and thermal activities (excluding travel agencies). - Standard rate of 26 percent for all other activities. - Manufacturing companies: reduced 10 percent corporate income tax rate when profits are reinvested. - Deductibility for in-house R&D or innovation partnerships with certified start-ups up to 30 percent of taxable profits. - 2022 Investment Code provides incentives under sectoral, regional, and large-scale structural projects, offering tax holidays for up to ten years depending on the nature and location of the investment. - Challenges: - Complexity from multiple rates and exemptions undermines neutrality, transparency, and revenue potential. - Monitoring and administration difficulties (e.g., different rate for reinvested profits). - Multiple rates weaken sectoral neutrality and increase compliance costs. - CIT revenues stagnant over past decade and overtaken by PIT as a source of revenue. - SME simplified regime (Impôt Forfaitaire Unique – IFU): - Covers about 80 percent of all businesses. - Applies to SMEs with annual revenue below 8 million dinars (approximately USD 61,000). - Rates range from 5 to 12 percent. - Minimum annual payment increased from 10,000 to 30,000 dinars in 2025. - Auto-entrepreneur regime complements IFU for self-employed individuals. - Challenge: encourage growing SMEs to switch to the standard regime. - CIT reform options: - Streamline and uniformize rate structure. - Rationalize tax incentives. - Leverage Pillar Two international corporate tax reform to align investment incentives with the global minimum tax framework and improve minimum business taxation. - Given that investment incentives were changed in 2022, major reforms to incentives may not be advisable in the near term. *Source: sipea2025132 — https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025132.pdf* ### 21. Improving the fiscal regime for the mining industry. With significant reserves of ### 21. Improving the fiscal regime for the mining industry. With significant reserves of ### Mining sector fiscal regime and revenue potential - Current revenue from the mining sector is around 0.02 percent of GDP. - Recommendation: introduce a more progressive, profit-based fiscal regime (progressive royalty system) to: - Make the sector more attractive to private investors. - Ensure the government captures a fair share of revenues during periods of high commodity prices. - Note: Commodity prices for phosphates, iron, and zinc respond more directly to sector-specific demand from agriculture and construction; increased mining revenue would not necessarily add to overall revenue volatility. - Fiscal context and constraints: - Pillar Two introduces a minimum effective corporate tax rate of 15 percent for large multinational companies. - Regardless of profitability, every company currently must pay a minimum annual corporate tax of DZD 10,000 (around US $70). ### Personal Income Tax (PIT): performance and reform scope - PIT recent performance: - PIT revenues have been on an upward trend and broadly align with peers. - A revision in 2022 led to lower PIT rates, with many private sector workers falling below the exemption threshold. - The 2022 reform improved PIT progressivity, with no noticeable effect on overall PIT revenue so far—potentially because increases in public sector wages in 2022, 2023, and 2024 offset potential revenue losses. - Redistributive capacity and parameters: - Redistributive capacity (difference between pre- and post-Gini) for Algeria: 4.78. - Basic deduction (LCU): 240,000. - Marginal rate above deduction: 23.00. - Top PIT rate: 35.00. - PIT revenue (in percent of GDP) for Algeria: 3.14. - Simplification recommendations: - Consolidate deductions, limit exemptions, and review special regimes. - Reduce multiplicity of brackets and complexity of deductions and credits to enhance fairness, improve compliance, and support stronger revenue mobilization. ### Property tax and local government finance - The property tax (Taxe foncière) is critical for local government finance but faces structural challenges: - Tax base remains narrow and collection rates are low. - Contribution to total revenue is minimal despite estimates suggesting potential of over 1 percent of GDP. - Administrative property values are significantly out of step with actual market values, undermining local revenue mobilization. - Recommendation: develop a functional property tax system as part of broader tax reform. ### Small and inefficient taxes - Algeria’s tax system includes numerous small taxes that generate limited revenue while imposing fixed administrative costs. - Recommendation: reassess these taxes (e.g., Droits de timbre, Taxe de domiciliation bancaire, Taxe pour usage des appareils récepteurs de radiodiffusion et de la télévision, Taxe de publicité, and three new taxes created by the Loi de finance 2025) to weigh revenue potential versus complexity. ### Tax administration: modernization and arrears recovery - Digitalization and information systems improvements have been made. - Further improvement: introduce a comprehensive risk management framework for major sectors, including oil and gas. - Tax arrears: - Estimated recoverable outstanding tax debts: 1,500 billion dinars (around 4.4 percent of 2024 GDP). - Potential annual recoveries: about 200 billion dinars, or 0.6 percent of GDP. - Recommendation: conduct a Tax Administration Diagnostic Assessment Tool (TADAT) to identify reform priorities and align capacity development; TADAT evaluates nine performance outcome areas with scores from A to D. ### Medium-term revenue strategy and reform sequencing - Potential to increase non-hydrocarbon tax revenues by an estimated 2 to 4 percent of GDP through further tax reform. - Core reform priorities: - Streamline tax rates, particularly in VAT and CIT, to reduce distortions and improve neutrality. - Rationalize tax exemptions and incentives for VAT, CIT and PIT, with clear criteria and limited use. - Enhance design and performance of excise taxes, the property tax, and the fiscal regime for the mining sector. - Sequencing and stability considerations: - Avoid immediate re-opening of recently modified regimes (investment incentives modified in 2022; PIT recently reformed). - Near-term priorities: improvements in VAT, mining taxation, excise taxes, and continued tax arrears recovery. - Medium-Term Revenue Strategy (MTRS) characteristics (typical 4 to 6 years): - Sustained political commitment from formulation to implementation. - Coordinated support among capacity development partners aligned with government leadership and priorities. - A quantified revenue target to support economic and social development. - A comprehensive approach addressing policy, administration, and legal framework interlinkages. ### Structural reforms supporting revenue mobilization - Complementary measures to support tax reform: - Broaden financial inclusion and limit cash use in transactions. - Fight corruption in tax administration and improve transparency. - Reduce the size of the informal sector to support revenue mobilization. *Source: IMF — “21. Improving the fiscal regime for the mining industry. With significant reserves of phosphates, iron, zinc, lead, and other minerals, the mining sector has strong potential to support both economic diversification and increased tax revenues.”* --- _Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025132.pdf_