## Headline Tax Rates and Tax Expenditures, 2025

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---

### Background and fiscal context
- Fiscal deficits increased in the aftermath of the pandemic, bringing public debt near to 60 percent—the limit set by the fiscal rule.
- 90 percent of government spending is allocated to current non-discretionary expenditures, projected to drive most of the anticipated increase in spending over the coming decades.
- North Macedonia has lower public capital stock and infrastructure quality compared to peers; pension spending needs expected to increase with population aging.
- Tax system headline features:
  - Personal income tax (PIT) statutory rate: 10 percent (flat since 2008).
  - Corporate income tax (CIT) statutory rate: 10 percent (flat since 2008).
  - Standard VAT rate: 18 percent; reduced rates of 5 percent and 10 percent and numerous exemptions apply.
  - Tax expenditures estimated at around 3 percent of GDP in 2025 (16.3 percent of total tax revenues).
  - VAT-related tax expenditures: about 2.5 percent of GDP.
  - Tax revenue collection: improved from about 16 percent of GDP in 2014 to 18.4 percent in 2025.
  - VAT net revenues: around 8.4 percent of GDP.
  - PIT collection: 3.3 percent of GDP.
  - CIT yields: about 2.1 percent of GDP.
- Comparators and efficiency:
  - Headline rates are below CESEE averages reported in the source: PIT 23 percent; CIT 16 percent; VAT 21 percent.
  - VAT C‑efficiency remains below several regional peers.
  - PIT and CIT productivity are modest.
  - Tax buoyancy indicators: long-run response of overall tax revenue to economic growth is weaker in North Macedonia than peer countries, particularly for VAT and excises; PIT and CIT buoyancy estimates are above 1.5.
- Informality and administration:
  - Informal economy estimated at approximately 33 percent of GDP (World Bank estimate for 2020).
  - CESEE average (excluding Western Balkans) informal economy: 26 percent of GDP.
  - Government commitments: maintain low tax rates while prioritizing domestic revenue mobilization via digitalization; PRO Strategic Plan for 2025–27 prioritizes combating informality.
  - PRO launched testing phase of the e‑invoicing project as of January 1, 2026.
  - Ministry of Finance plans to review VAT, PIT, and CIT laws to streamline regulations and improve compliance.

### Tax potential (stochastic frontier results)
- Methodology:
  - Stochastic frontier model using a panel of 154 countries; explanatory variables include GDP, trade openness, governance, and demographic features.
  - Model separates statistical noise (two-sided error) from one-sided non-negative tax inefficiency component (half-normal).
  - True Random Effects used for time-invariant heterogeneity.
- Key quantitative results:
  - Estimated tax potential: about 21 percent of GDP.
  - Estimated tax gap: around 3½ percent of GDP.
  - The estimated tax gap is comparable to both the Western Balkan region and the EU median.
  - The tax gap has been persistent over time.

### Policy recommendations — tax policy priorities
- VAT
  - Rationalize VAT expenditures that are poorly targeted and costly.
  - Phase out the reduced VAT rate of 5 percent for accommodation services and meals provided by hotels, hostels, and motels.
  - Phase out the reduced VAT rate of 10 percent for restaurants.
  - Remove VAT exemption for use of toll roads to uphold the user-pays principle.
  - Review the effectiveness of the MY VAT Program; consider that such schemes can be administratively complex, prone to leakage, and less effective than direct spending instruments.
  - Pursue a broad-based VAT with limited exemptions and a single rate as a least-distortive, reliable instrument for domestic revenue mobilization.
- Corporate income tax (CIT)
  - Scale back open-ended and weakly targeted CIT incentives to broaden the base and contain fiscal costs.
  - Example: ten‑year profit tax holiday for firms in Technological-Industrial Development Zones (TIDZs) entails significant revenue losses of around 20 percent of CIT revenue while benefits are unclear.
  - Subject incentives not linked to performance criteria to periodic review and sunset provisions.
  - Reconsider the reinvested profits deduction, which disproportionately benefits established, highly profitable firms.
  - Given the 10 percent statutory CIT rate and fiscal consolidation needs, base broadening should precede any consideration of a higher statutory rate; over the medium term aligning more closely with the 15 percent global minimum could simplify the system and modestly raise revenue.
- Personal income tax (PIT)
  - Introduce greater progressivity to support equity and revenue objectives.
  - Reduce large differences in effective taxation between labor income, service contracts, and capital income to improve neutrality and limit income reclassification.
  - A more neutral PIT would help reduce reliance on high social security contributions, subject to addressing social insurance financial sustainability.
- Environmental and health excises
  - Strengthen excises that remain below potential, including petrol, diesel, liquefied petroleum gas, and cigarettes (many rates remain below minimum thresholds in the Energy Taxation and Tobacco Excise Directives).
  - Excises on alcohol broadly consistent with EU rules; absence of excise on sugar-sweetened beverages is a missed public health and revenue opportunity.
  - Given recent energy shocks and temporary reductions in fuel excises, further strengthening of environmental and health-related excises is preferable once inflationary pressures subside.
- Property taxation
  - Recurrent property taxation is underutilized; reform can provide stable, growth-friendly local revenue.
  - Priorities:
    - Phase out poorly targeted exemptions (particularly for owner-occupied housing) in favor of progressive instruments such as a basic value threshold or targeted deferral mechanisms.
    - Gradual increase in statutory rates toward 0.3–0.6 percent.
    - Modernize valuation practices: consistent market-value assessments, improved transaction recording, eventual use of automated mass appraisal techniques.
    - Centralize some expertise to enhance fairness, transparency, and administrative efficiency while retaining property tax as a local revenue source.

### Tax administration priorities
- Reduce informality and improve compliance via digitalization and IT modernization:
  - Improve early detection of incorrectly reported taxes and conduct advanced risk analyses.
  - Implement targeted and more effective audits prioritizing informality-prone sectors.
  - Strengthen the tax audit program and enhance enforcement and sanctions.
  - Upgrade PRO’s electronic tax system (E-PRO), analytical capacity, and IT infrastructure reliability, security, and sustainability.
  - Continue rollout and scaling of e-invoicing (testing phase launched January 1, 2026).
- Strengthen inter‑agency coordination and review tax law frameworks (VAT, PIT, CIT) to streamline regulations and reduce opportunities for avoidance and misreporting.

### Strengthening PRO human resources and IT
- PRO human resource capacity needs strengthening urgently in staffing and analytical and technical capacity.
- The IT infrastructure for tax payments is outdated and could become a bottleneck when greater digitalization (e.g., e-invoicing) is deployed.
- Adopting a COTS solution would be a much-needed change.
- IMF capacity building priorities for PRO:
  - (i) Improving the Compliance Risk Management.
  - (ii) Strengthening audit and verification approaches and methods.
  - (iii) Modernizing the organizational structure of the PRO and improving the collection and debt management functions.
  - (iv) Accelerating digitalization and business process reengineering.

### E-invoicing and digitalization: expected revenue and compliance impacts
- Electronic payment of taxes is already ubiquitous; PRO has launched an e-invoicing project.
- Evidence cited:
  - Peru's e-invoice adoption increased reported sales, purchases, and value-added by over 5 percent in the first year.
  - Cross-country evidence suggests adoption of e-invoicing can improve revenue mobilization by 0.7 percent of GDP.
  - Adoption of electronic fiscal devices can improve revenue mobilization by 0.5 percent of GDP.
- Effectiveness caveats:
  - Effects depend on the type of tax (more effective for VAT and corporate income tax).
  - Require availability of complementary human and physical resources.
  - Require adequate and sufficient resources, tools, and skills for analysis of mass data and its integration into overall compliance work.
  - Can be enhanced by expanding digital connectivity and ensuring sufficient staffing and expertise among tax officials.

### Excise duties on energy products: North Macedonia vs EU minimum rates
- Unit comparisons (North Macedonia excise | EU minimum rate | Unit):
  - Unleaded petrol: ~ 0.352 | 0.359 | EUR/liter
  - Leaded petrol: ~ 0.396 | 0.421 | EUR/liter
  - Diesel: ~ 0.245 | 0.33 | EUR/liter
  - Kerosene: ~ 0.146 | 0.33 | EUR/liter
  - LPG: ~ 0.079 | 0.125 | EUR/kg

### Local recurrent property tax rates in SEE countries (comparative snapshot)
- Albania: Tax base — Market value (buildings); Statutory rate (typical range) — 0.05% (residential); ~0.2% (commercial); Level of government — Municipal
- North Macedonia: Tax base — Market value (land & buildings); Statutory rate (typical range) — 0.10% – 0.20% (up to 3× for unused agricultural land); Level of government — Municipal
- Serbia: Tax base — Market value; Statutory rate (typical range) — 0.10% – 0.40% (higher for legal entities); Level of government — Municipal
- Bosnia & Herzegovina (FBiH): Tax base — Area‑based (m²); Statutory rate (typical range) — 0.5 – 3 BAM per m²; Level of government — Cantonal / Municipal
- Bosnia & Herzegovina (RS): Tax base — Market value; Statutory rate (typical range) — 0.05% – 0.20%; Level of government — Municipal
- Montenegro: Tax base — Market value; Statutory rate (typical range) — 0.10% – 1.00%; Level of government — Municipal
- Kosovo: Tax base — Market value; Statutory rate (typical range) — 0.05% – 1.00%; Level of government — Municipal

### Panel regression: estimation results (selected)
- Model: True random-effects model (half-normal)
- Number of obs = 3427
- Number of groups = 154
- Obs per group: min = 4; avg = 22.3; max = 25
- Prob > chi2 = 0.0000
- Log simulated-likelihood = 1022.5434
- Wald chi2(2) = 45.01
- Number of Randomized Halton Sequences = 50
- Base for Randomized Halton Sequences = 7
- Selected coefficient estimates (ln_TaxRev):
  - Frontier:
    - ln_wdi_gdppcppp_cons_id: Coefficient = 2.093326; Robust std. err. = 0.3933692; z = 5.32; P>|z| = 0.000; [95% conf. interval] = 1.322337 2.864316
    - ln_wdi_gdppcppp_cons_id_sq: Coefficient = -0.1009701; Robust std. err. = 0.0193115; z = -5.23; P>|z| = 0.000; [95% conf. interval] = -0.13882 -0.0631202
    - ln_wdi_trade_gdp: Coefficient = 0.1149826; Robust std. err. = 0.046156; z = 2.49; P>|z| = 0.013; [95% conf. interval] = 0.0245185 0.2054467
    - ln_vdem_pubcorr: Coefficient = -0.0315164; Robust std. err. = 0.017714; z = -1.78; P>|z| = 0.075; [95% conf. interval] = -0.0662352 0.0032025
    - _cons: Coefficient = -8.032839; Robust std. err. = 1.903737; z = -4.22; P>|z| = 0.000; [95% conf. interval] = -11.7641 -4.301583
  - Usigma:
    - adj_wdi_ge_est: Coefficient = -0.905161; Robust std. err. = 0.2304921; z = -3.93; P>|z| = 0.000; [95% conf. interval] = -1.356917 -0.4534047
    - _cons: Coefficient = 1.440603; Robust std. err. = 1.147356; z = 1.26; P>|z| = 0.209; [95% conf. interval] = -0.8081742 3.68938
  - Vsigma:
    - _cons: Coefficient = -4.856471; Robust std. err. = 0.7814323; z = -6.21; P>|z| = 0.000; [95% conf. interval] = -6.38805 -3.324892
  - Theta:
    - _cons: Coefficient = 1.15586; Robust std. err. = 0.0178706; z = 64.68; P>|z| = 0.000; [95% conf. interval] = 1.120834 1.190886
  - E(sigma_u) = 0.2315971; 0.2284247 0.2347695
  - sigma_v = 0.0881923; Robust std. err. = 0.0344582; z = 2.56; P>|z| = 0.010; [95% conf. interval] = 0.0410065 0.1896745

### Policy-relevant findings and implications
- Strengthening staffing, analytical, and technical capacity at the PRO is urgent to realize revenue gains from digitalization and compliance improvements.
- Modernizing IT (including adopting COTS solutions) and accelerating e-invoicing can materially raise reported economic activity and revenue, particularly for VAT and corporate income tax.
- Complementary investments (staffing, skills for mass-data analysis, digital connectivity) are necessary to convert digital tools into sustained revenue mobilization gains.
- Excise rates for several energy products in North Macedonia are below or around EU minimums, with specific gaps by product that may warrant policy consideration.
- Local property tax statutory rates in North Macedonia (0.10% – 0.20%, up to 3× for unused agricultural land) are within regional comparators but show variation across SEE countries.

*Source: "TAX POTENTIAL IN NORTH MACEDONIA", Selected Issues Paper (May 12, 2026).*

### 2.   Headline Tax Rates and Tax Expenditures, 2025 ______________________________________ 3

### 2.   Headline Tax Rates and Tax Expenditures, 2025

### Background and fiscal context
- Fiscal deficits increased in the aftermath of the pandemic, bringing public debt near to 60 percent—the limit set by the fiscal rule.
- 90 percent of government spending is allocated to current non-discretionary expenditures, projected to drive most of the anticipated increase in spending over the coming decades.
- North Macedonia has lower public capital stock and infrastructure quality compared to peers; pension spending needs expected to increase with population aging.
- Tax system features and recent performance:
  - Personal income tax (PIT) statutory rate: 10 percent (flat since 2008).
  - Corporate income tax (CIT) statutory rate: 10 percent (flat since 2008).
  - Standard VAT rate: 18 percent; reduced rates of 5 percent and 10 percent and numerous exemptions apply.
  - Tax expenditures estimated at around 3 percent of GDP in 2025 (16.3 percent of total tax revenues).
  - VAT-related tax expenditures: about 2.5 percent of GDP (largely reflecting widespread use of the 5 percent rate).
  - Tax revenue collection: improved from about 16 percent of GDP in 2014 to 18.4 percent in 2025.
  - VAT net revenues: around 8.4 percent of GDP (the main revenue source but weakest performer among Western Balkan peers).
  - PIT collection: 3.3 percent of GDP.
  - CIT yields: about 2.1 percent of GDP.
- Comparators and efficiency:
  - Headline rates are well below CESEE averages (23 percent for PIT, 16 percent for CIT, and 21 percent for VAT as stated in the source table).
  - VAT C‑efficiency remains below several regional peers.
  - PIT and CIT productivity are modest.
  - Tax buoyancy indicators: long-run response of overall tax revenue to economic growth is weaker in North Macedonia than peer countries, particularly for VAT and excises; PIT and CIT buoyancy estimates are above 1.5.
- Informality and administration:
  - Informal economy estimated at approximately 33 percent of GDP (World Bank estimate for 2020).
  - CESEE average (excluding Western Balkans) informal economy: 26 percent of GDP.
  - Government commitments include maintaining low tax rates while prioritizing domestic revenue mobilization via digitalization; PRO Strategic Plan for 2025–27 prioritizes combating informality.
  - PRO launched testing phase of the e‑invoicing project as of January 1, 2026.
  - Ministry of Finance plans to review VAT, PIT, and CIT laws to streamline regulations and improve compliance.

### Tax potential (stochastic frontier results)
- Methodology:
  - Stochastic frontier model using a panel of 154 countries; explanatory variables include GDP, trade openness, governance, and demographic features.
  - Model separates statistical noise (two-sided error) from one-sided non-negative tax inefficiency component (half-normal).
  - Tax effort computed as observed tax less inefficiency; True Random Effects used for time-invariant heterogeneity.
- Key quantitative results:
  - Estimated tax potential: about 21 percent of GDP.
  - Estimated tax gap: around 3½ percent of GDP.
  - The estimated tax gap is comparable to both the Western Balkan region and the EU median.
  - The tax gap has been persistent over time.

### Policy recommendations — tax policy priorities
- VAT
  - Rationalize VAT expenditures that are poorly targeted and costly.
  - Phase out the reduced VAT rate of 5 percent for accommodation services and meals provided by hotels, hostels, and motels.
  - Phase out the reduced VAT rate of 10 percent for restaurants.
  - Remove VAT exemption for use of toll roads to uphold the user-pays principle.
  - Review the effectiveness of the MY VAT Program; consider that such schemes can be administratively complex, prone to leakage, and less effective than direct spending instruments.
  - Pursue a broad-based VAT with limited exemptions and a single rate as a least-distortive, reliable instrument for domestic revenue mobilization.
- Corporate income tax (CIT)
  - Scale back open-ended and weakly targeted CIT incentives to broaden the base and contain fiscal costs.
  - Key example: ten‑year profit tax holiday for firms in Technological-Industrial Development Zones (TIDZs) entails significant revenue losses of around 20 percent of CIT revenue while benefits are unclear.
  - Subject incentives not linked to performance criteria to periodic review and sunset provisions.
  - Reconsider the reinvested profits deduction, which disproportionately benefits established, highly profitable firms.
  - Given the 10 percent statutory CIT rate and fiscal consolidation needs, base broadening should precede any consideration of a higher statutory rate; over the medium term aligning more closely with the 15 percent global minimum could simplify the system and modestly raise revenue.
- Personal income tax (PIT)
  - Introduce greater progressivity to support equity and revenue objectives.
  - Reduce large differences in effective taxation between labor income, service contracts, and capital income to improve neutrality and limit income reclassification.
  - A more neutral PIT would help reduce reliance on high social security contributions, subject to addressing social insurance financial sustainability.
- Environmental and health excises
  - Strengthen excises that remain below potential, including petrol, diesel, liquefied petroleum gas, and cigarettes (many rates remain below minimum thresholds in the Energy Taxation and Tobacco Excise Directives).
  - Excises on alcohol broadly consistent with EU rules; absence of excise on sugar-sweetened beverages is a missed public health and revenue opportunity.
  - Given recent energy shocks and temporary reductions in fuel excises, further strengthening of environmental and health-related excises is preferable once inflationary pressures subside.
- Property taxation
  - Recurrent property taxation is underutilized; reform can provide stable, growth-friendly local revenue.
  - Priorities:
    - Phase out poorly targeted exemptions (particularly for owner-occupied housing) in favor of progressive instruments such as a basic value threshold or targeted deferral mechanisms.
    - Gradual increase in statutory rates toward 0.3–0.6 percent.
    - Modernize valuation practices: consistent market-value assessments, improved transaction recording, eventual use of automated mass appraisal techniques.
    - Centralize some expertise to enhance fairness, transparency, and administrative efficiency while retaining property tax as a local revenue source.

### Tax administration priorities
- Reduce informality and improve compliance via digitalization and IT modernization:
  - Improve early detection of incorrectly reported taxes and conduct advanced risk analyses.
  - Implement targeted and more effective audits prioritizing informality-prone sectors.
  - Strengthen the tax audit program and enhance enforcement and sanctions.
  - Upgrade PRO’s electronic tax system (E-PRO), analytical capacity, and IT infrastructure reliability, security, and sustainability.
  - Continue rollout and scaling of e-invoicing (testing phase launched January 1, 2026).
- Strengthen inter‑agency coordination and review tax law frameworks (VAT, PIT, CIT) to streamline regulations and reduce opportunities for avoidance and misreporting.

*Source: "TAX POTENTIAL IN NORTH MACEDONIA", Selected Issues Paper (May 12, 2026).*

### 12.      Strengthening tax administration is also essential to close the tax gap. Besides ongoing

### 12.      Strengthening tax administration is also essential to close the tax gap. Besides ongoing

### Strengthening PRO human resources and IT
- The PRO’s human resource capacity needs to be strengthened urgently in terms of staffing and analytical and technical capacity.
- The IT infrastructure for tax payments is outdated and could become a bottleneck when greater digitalization (e.g., e-invoicing) is deployed.
- Adopting a COTS solution would be a much-needed change.
- IMF capacity building priorities for PRO in the coming years:
  - (i) Improving the Compliance Risk Management.
  - (ii) Strengthening audit and verification approaches and methods.
  - (iii) Modernizing the organizational structure of the PRO and improving the collection and debt management functions.
  - (iv) Accelerating digitalization and business process reengineering.

### E-invoicing and digitalization: expected revenue and compliance impacts
- Electronic payment of taxes is already ubiquitous in North Macedonia; PRO has recently launched an e-invoicing project.
- IMF review evidence: Peru's e-invoice adoption increased reported sales, purchases, and value-added by over 5 percent in the first year.
- Cross-country evidence suggests:
  - Adoption of e-invoicing can improve revenue mobilization by 0.7 percent of GDP.
  - Adoption of electronic fiscal devices can improve revenue mobilization by 0.5 percent of GDP.
- Effectiveness caveats:
  - Effects depend on the type of tax (more effective for VAT and corporate income tax).
  - Require availability of complementary human and physical resources.
  - Require adequate and sufficient resources, tools, and skills for analysis of mass data and its integration into overall compliance work.
  - Can be enhanced by expanding digital connectivity and ensuring sufficient staffing and expertise among tax officials.

### Excise duties on energy products: North Macedonia vs EU minimum rates
- Unit comparisons (North Macedonia excise | EU minimum rate | Unit):
  - Unleaded petrol: ~ 0.352 | 0.359 | EUR/liter
  - Leaded petrol: ~ 0.396 | 0.421 | EUR/liter
  - Diesel: ~ 0.245 | 0.33 | EUR/liter
  - Kerosene: ~ 0.146 | 0.33 | EUR/liter
  - LPG: ~ 0.079 | 0.125 | EUR/kg
- Sources: MoF data and Energy Taxation Directive 2003/96/EC

### Local recurrent property tax rates in SEE countries (comparative snapshot)
- Albania: Tax base — Market value (buildings); Statutory rate (typical range) — 0.05% (residential); ~0.2% (commercial); Level of government — Municipal
- North Macedonia: Tax base — Market value (land & buildings); Statutory rate (typical range) — 0.10% – 0.20% (up to 3× for unused agricultural land); Level of government — Municipal
- Serbia: Tax base — Market value; Statutory rate (typical range) — 0.10% – 0.40% (higher for legal entities); Level of government — Municipal
- Bosnia & Herzegovina (FBiH): Tax base — Area‑based (m²); Statutory rate (typical range) — 0.5 – 3 BAM per m²; Level of government — Cantonal / Municipal
- Bosnia & Herzegovina (RS): Tax base — Market value; Statutory rate (typical range) — 0.05% – 0.20%; Level of government — Municipal
- Montenegro: Tax base — Market value; Statutory rate (typical range) — 0.10% – 1.00%; Level of government — Municipal
- Kosovo: Tax base — Market value; Statutory rate (typical range) — 0.05% – 1.00%; Level of government — Municipal
- Sources: Tax laws and comparative regional overviews [y-tax.al], [finance.gov.mk], [balkanglobalhub.com]

### Panel regression: estimation results (Annex I)
- Model: True random-effects model (half-normal)
- Number of obs = 3427
- Number of groups = 154
- Obs per group: min = 4; avg = 22.3; max = 25
- Prob > chi2 = 0.0000
- Log simulated-likelihood = 1022.5434
- Wald chi2(2) = 45.01
- Number of Randomized Halton Sequences = 50
- Base for Randomized Halton Sequences = 7
- Selected coefficient estimates (ln_TaxRev):
  - Frontier:
    - ln_wdi_gdppcppp_cons_id: Coefficient = 2.093326; Robust std. err. = 0.3933692; z = 5.32; P>|z| = 0.000; [95% conf. interval] = 1.322337 2.864316
    - ln_wdi_gdppcppp_cons_id_sq: Coefficient = -0.1009701; Robust std. err. = 0.0193115; z = -5.23; P>|z| = 0.000; [95% conf. interval] = -0.13882 -0.0631202
    - ln_wdi_agri_gdp: Coefficient = 0.0301718; Robust std. err. = 0.1182026; z = 0.26; P>|z| = 0.799; [95% conf. interval] = -0.201501 0.2618446
    - ln_wdi_trade_gdp: Coefficient = 0.1149826; Robust std. err. = 0.046156; z = 2.49; P>|z| = 0.013; [95% conf. interval] = 0.0245185 0.2054467
    - ln_vdem_pubcorr: Coefficient = -0.0315164; Robust std. err. = 0.017714; z = -1.78; P>|z| = 0.075; [95% conf. interval] = -0.0662352 0.0032025
    - _cons: Coefficient = -8.032839; Robust std. err. = 1.903737; z = -4.22; P>|z| = 0.000; [95% conf. interval] = -11.7641 -4.301583
  - Usigma:
    - adj_wdi_ge_est: Coefficient = -0.905161; Robust std. err. = 0.2304921; z = -3.93; P>|z| = 0.000; [95% conf. interval] = -1.356917 -0.4534047
    - _cons: Coefficient = 1.440603; Robust std. err. = 1.147356; z = 1.26; P>|z| = 0.209; [95% conf. interval] = -0.8081742 3.68938
  - Vsigma:
    - _cons: Coefficient = -4.856471; Robust std. err. = 0.7814323; z = -6.21; P>|z| = 0.000; [95% conf. interval] = -6.38805 -3.324892
  - Theta:
    - _cons: Coefficient = 1.15586; Robust std. err. = 0.0178706; z = 64.68; P>|z| = 0.000; [95% conf. interval] = 1.120834 1.190886
  - E(sigma_u) = 0.2315971; 0.2284247 0.2347695
  - sigma_v = 0.0881923; Robust std. err. = 0.0344582; z = 2.56; P>|z| = 0.010; [95% conf. interval] = 0.0410065 0.1896745

### Policy-relevant findings and implications
- Strengthening staffing, analytical, and technical capacity at the PRO is urgent to realize revenue gains from digitalization and compliance improvements.
- Modernizing IT (including adopting COTS solutions) and accelerating e-invoicing can materially raise reported economic activity and revenue, particularly for VAT and corporate income tax.
- Complementary investments (staffing, skills for mass-data analysis, digital connectivity) are necessary to convert digital tools into sustained revenue mobilization gains.
- Excise rates for several energy products in North Macedonia are below or around EU minimums, with specific gaps by product that may warrant policy consideration.
- Local property tax statutory rates in North Macedonia (0.10% – 0.20%, up to 3× for unused agricultural land) are within regional comparators but show variation across SEE countries.

*Source: sipea2026049 — Chapter/section content (selected excerpts) from the provided PDF.*

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_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2026/english/sipea2026049.pdf_