## _wp1598

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---

### Introduction and scope
- Review period: 1990-2012.
- Focus: revenue developments and taxation in the Middle-East and North Africa (MENA) region, with emphasis on non-resource tax policy.
- Objectives:
  - Analyze levels and composition of government revenues.
  - Assess taxation structures against revenue, equity, and efficiency yardsticks.
  - Draw lessons for future reforms while recognizing country-specific needs.
- Methodology: countries partitioned into five groups based on resource revenue intensity (resource revenues exceeding 50 percent of total revenues for more than half of the period), geographical location, and trading blocs (GCC customs union). Annex I lists country groups.

### Regional changes and comparative indicators (selected exact figures)
- Population and migration
  - Total population: 1990 = 109.5 (millions); 2012 = 161.0 (millions); Change 2012-1990 = 47.0 (percent).
  - GCC population: 1990 = 30.5 (millions); 2012 = 224.9 (millions); Change 2012-1990 = 61.8 (percent).
  - Note: "Population in the GCC group doubled over the period. It now exceeds the population of resource-rich Maghreb countries."
- Resource shares and fiscal impacts
  - Share of oil GDP (Total): 1990 = 5.0 (percent); 2012 = 9.7 (percent); Change = 94.6 (percent).
  - Resource countries: share of resource-GDP in total GDP increased from less than 30 to nearly 45 percent; Resource countries population: 1990 = 22.9 (millions); 2012 = 47.4 (millions); Change 107.5 (percent).
  - Per capita GDP (OME countries): rose from $3,925 to $11,704; real per capita revenues in resource countries increased from USD 832 to USD 1,584.
- GDP per capita (USD, PPP)
  - Total: 1990 = 3,518.3; 2012 = 9,974.1; Change = 183.5 (percent).
  - Non-resource countries: 1990 = 3,925.4; 2012 = 11,703.8; Change = 198.2 (percent).
  - Resource countries: 1990 = 34,928.5; 2012 = 68,734.8; Change = 196.8 (percent).
- Government revenues and tax revenues (selected)
  - Government revenues Percent of GDP (Total): 1990 = 19.2; 2012 = 21.7; Change = 12.8 (percent).
  - Government tax revenues Percent of GDP (Total): 1990 = 15.0; 2012 = 17.1; Change = 14.5 (percent).
  - Resource countries: Government revenues Percent of GDP: 1990 = 38.2; 2012 = 43.9; Tax revenues Percent of GDP: 1990 = 2.8; 2012 = 2.9.
  - Non-resource countries: Government revenues Percent of GDP: 1990 = 8.0; 2012 = 32.4; Tax revenues Percent of GDP: 1990 = 2.7; 2012 = 4.5.
- Per capita government revenues (1990 USD)
  - Total: 1990 = 35.6; 2012 = 28.1; Change = -21.1 (percent).
  - Resource countries: 1990 = 3,266.9; 2012 = 5,370.7; Change = 64.4 (percent).
  - Non-resource countries: 1990 = 210.1; 2012 = 429.5; Change = 104.4 (percent).
- Key interpretation
  - Population growth and migration (notably to GCC) have tax implications including debates on taxing expatriate remittances.
  - Resource-rich OME countries experienced large rises in oil GDP share and per capita incomes, increasing fiscal dependence on resource revenues.
  - Tax revenues remained very low and stagnant in resource countries; increased slightly in non-resource countries but remain a policy concern.

### Trends in revenue levels and composition
- Correlations and aggregates
  - Correlation between total and resource revenues: 0.99.
  - Resource revenues: slightly below 15 percent of GDP at start of sample; peaked at 31 percent of GDP in 2008; fell to about 20 percent after the 2008 crisis; rose to 29.5 percent of GDP in 2012.
  - Tax revenues fluctuated in a narrow range of 6 to 9 percent of GDP; level at end of period was slightly below its beginning.
- Composition changes (1990s to 2011-12)
  - Regional change in tax ratio largely equals an uncompensated loss in trade taxes of about 1 percentage point of GDP.
  - Sales and excise taxes remained relatively stable regionally.
  - Corporate income tax (CIT) revenues increased but by less than the decline in trade taxes.
- Country-group patterns
  - Non-resource groups:
    - Mashreq: revenues declined sharply by an average of about 5 percentage points of GDP; tax revenues stagnant; per capita real revenues fell by about one-third.
    - Maghreb: raises about 6.4 percentage points of GDP more in tax revenues on average versus Mashreq; tax revenues increased over 2005-12.
  - Resource groups:
    - Natural resources main government revenue source since 2000.
    - Tax revenues stagnant in resource groups except Maghreb (Algeria).
    - Econometric result: resource revenues crowd out non-resource revenues by about 20 cents on average for each dollar increase in resource revenue (Crivelli and Gupta, 2014).
    - Correlation between resource and tax revenues: -0.73 for resource countries overall; +0.3 for OME group.
- Trade taxes
  - Trade taxes currently about 1 percent of GDP in many countries; share in total tax revenues declined from about 26 (early 1990s) to 15 percent in 2012.
  - Trade liberalization largely completed; pressure to mobilize revenue will fall on domestic taxes.

### Trade liberalization and tariff policy (findings and implications)
- Tariff roles and dynamics
  - Tariffs generate revenues that can be hard to replace when liberalizing trade and affect composition of domestic tax bases.
  - Collected tariff rate (CTR) = total trade taxes / value of imports.
  - Trade taxes and CTR declined from already low levels in resource countries; import base expanded from 33 to over 55 percent of GDP.
  - GCC CET = 5 percent applies to most imports, but exemptions and preferences are prevalent.
- Tariff structure characteristics
  - Average bound rates are very high; average MFN rates not particularly low, especially in non-resource countries.
  - Maximum rates and number of distinct tariff rates are high in most countries (except Kuwait).
  - Low revenue from tariffs partly explained by preferential treatments, exemptions and reduced rates.
- Trade performance constraints
  - MENA exports increased since early 1990s but are two-thirds below potential.
  - Intra-MENA trade well below potential; constraints include high transportation costs and inefficient customs clearance.
- Policy implications and recommended directions
  - Flatten the tariff structure, reduce the number of rates, and reduce maximum rates to maintain or increase trade tax revenues.
  - Reduce need for tariff exemptions/reductions to improve progressivity (imported goods disproportionately consumed by well-off individuals).
  - Careful attention to FTAs and interaction with domestic consumption taxes when designing reforms.

### Taxation of consumption — VAT (findings, distributional evidence, and policy options)
- VAT landscape
  - Forms: destination-based VAT, excises, and transaction taxes.
  - Origins: Maghreb and Egypt converted cascading sales taxes into VATs; Lebanon, Jordan, OME introduced VATs without historical heritage.
  - Standard rates and number of rates increased in all countries except Algeria.
  - Highest MENA standard VAT rate: 20 percent in Morocco.
  - Registration thresholds low in some countries (Algeria, Egypt, Morocco, Tunisia); Algeria increased VAT registration threshold to 30 million dinars (roughly USD 310,000, valued at exchange rates prevailing at end of March 2015).
- Revenue performance and efficiency
  - VATs contribute 30 to 55 percent of tax revenues in most MENA VAT countries (except Iran and Egypt where contribution is much lower).
  - C-efficiency estimates indicate yield can be improved via base broadening, especially in Egypt, Algeria, Tunisia, and Iran.
- Tax expenditures and distributional findings
  - VAT exemptions and lower rates are sizable and costly; equity concerns as poor benefit less than well-off.
  - Morocco VAT tax expenditures distribution (percent shares of VAT tax expenditures by quintile): Q1 5.2; Q2 9.3; Q3 12.0; Q4 15.0; Q5 19.7; Total 38.8.
  - Tunisia VAT tax expenditures distribution (percent shares): Q2 7.7; Q3 12.7; Q4 17.0; Q5 23.2; Total 39.2; first quintile n.a.
  - Top quintile receives about 40 percent of VAT tax expenditures; first quintile receives less than 10 percent.
- Policy options and implications
  - Streamlining VAT tax expenditures could raise revenue and allow increases in support to the poor.
  - Social safety nets (SSNs), such as conditional cash transfers, can be more efficient but are often poorly designed and underfinanced in MENA.
  - Gradual reform: reduce VAT exemptions/low rates to a limited list of items where share in poor consumption basket is very high — politically difficult.

### Excise taxes (findings and policy opportunities)
- Excise scope and trends
  - Main excises: tobacco, alcoholic and non-alcoholic drinks, petroleum products, cars, mobile telephony.
  - Excise revenues in percent of GDP declined significantly in all MENA countries since 2000, except Egypt and Lebanon (relatively constant).
- Reported excise revenue examples (weighted two-year averages, percent of GDP)
  - Resource countries:
    - Algeria: 2000-01 = 2.1 -> 2011-12 = 0.3.
    - Iran: 2000-01 = 1.77 -> 2011-12 = 0.32.
  - Non-resource countries:
    - Mauritania: 2.6 -> 0.88.
    - Morocco: 3.79 -> 2.77.
    - Tunisia: 3.16 -> 2.30.
    - Egypt: 1.36 -> 1.67.
    - Jordan: 0.83 -> 0.42.
    - Lebanon: 3.51 -> 2.96.
    - Syria: 0.26 -> 0.20 (2011-12 figure is for 2009-10).
- Drivers of excise revenue decline
  - Policy choices: reduced rates or failure to index to inflation; example Mauritania abolished major excises in 2006.
  - Market structures and price controls: government monopolies and fixed price formulas (tobacco).
  - Country practices: Tunisia’s specific excises not indexed to inflation; Lebanon’s low specific rates and high tariffs; GCC has no excise taxes but high CET on alcohol/tobacco with little revenue due to religious restrictions and exemptions.
- Policy opportunity
  - GCC countries could mobilize important revenue from excises on tobacco, cars, and non-alcoholic drinks.

### Taxation of business profits and investment incentives — CIT trends and incentives (findings)
- CIT trends
  - Average top CIT rates fell from early 1990s (about 35 percent in Mashreq to over 55 percent in OME) to 2012 rates between 18 to 28 percent.
  - Egypt increased top rate from 20 to 25 percent in 2012.
  - CIT revenues increased in all groups since early 1990s except Mashreq.
  - CIT generates between 2.3 to 4.3 percent in non-resource countries (Figure 7 reference).
- Implicit CIT base and interpretation
  - Implicit CIT base (ratio of CIT revenues to the product of the standard tax rate and GDP) doubled since early 1990s in groups with significant CIT revenue increases (resource groups excluding GCC, and Maghreb).
  - Interpretation: corporate profits as share of GDP increased and revenue gains more than compensated statutory rate reductions.
  - Caveat: measure weakness due to compliance differences between potential and actual CIT revenues.
- Relationship between CIT and PIT rates and firm legal form
  - Entrepreneur choice of legal form depends on relative levels of CIT and PIT.
  - Ratio of CIT to PIT rates increased in 1990s to exceed one, then declined to below or close to 1 in most countries.
  - Lowest ratio in non-resource Maghreb where implicit CIT base and CIT revenues rose most.
  - Implication: possible distortion in legal form choice contributing to weak PIT revenue; dividends taxation is light/porous, so double taxation of corporate profits is not an issue.
- Sectoral and effective taxation
  - Selected sectors in Maghreb taxed at rates different from standard CIT (examples: Algeria trading 25% vs standard 19% until Jan 2015; Jordan and Tunisia banking/telecoms 35% vs 14% and 25% respectively; Morocco banking 37% vs 30%).
  - Regulated sectors with barriers to entry may generate rents; telecoms grew significantly in past decade.
  - Effective tax rates (AETRs) are more relevant for investment decisions than headline CIT rates due to widespread investment tax incentives.
  - De Mooij and Ederveen (2008): semi-elasticity of corporate tax base with respect to tax rate = -3.1.
- Investment tax incentives: scope and features
  - All MENA countries provide incentives in investment or free-zone laws.
  - Most incentives are temporary tax exemptions; holidays typically 5 to 10 years, up to 20 (Egypt, Iran, Yemen) and 50 years (UAE).
  - Incentives broadly targeted by location, job creation, use of domestic inputs; some reserved to foreign investors (Iraq, Libya; de facto GCC).
- Political economy and effectiveness concerns
  - Tax competition produced a dual-economy with tax holidays coexisting with relatively high standard rates.
  - Dualism creates inequities, discourages entrepreneurship, and delays CIT rate reductions.
  - Incentives often legislated in non-tax laws with complex eligibility and limited tax administration oversight (example: Egypt).
  - Empirical evidence on incentives’ effectiveness is mixed; tax holidays often rank low in business climate surveys and can be redundant.
  - Alternatives (investment allowances, accelerated depreciation) may be more effective where justified by market failures.

### Box: Reforming the CIT and Investment Tax Incentives in Tunisia (numbers and lessons)
- Pre-2007
  - Standard CIT rate: 35 percent.
  - Tax holidays: commonly 10 years or more; followed by taxation at half the standard rate (half-rate rarely applied).
  - Dividends exempt in the hands of shareholders.
- 2007 proposal and outcome
  - Proposed reduce standard rate from 35 to 30 percent (except BTH sectors).
  - Proposed tax offshore activities at 10 percent (grandfathering existing investments); offshore rate postponed annually until 2014.
  - Political resistance from offshore sector; offshore lobby sought linkage of post-holiday half-rate to reduced rate (30 percent).
  - Outcome: reduction to 30 percent approved; offshore 10 percent postponed until 2014.
- 2014 outcomes and medium-term objective
  - 2014 approved standard rate: reduce from 30 to 25 percent (35 percent retained for BTH sectors).
  - 2014 approved offshore rate: 10 percent.
  - Authorities’ medium-term objective: single CIT rate of 15 to 20 percent applicable to all firms (except BTH sectors).
- Regional fiscal data and recommendations
  - Morocco publishes tax expenditures: CIT investment incentives forgone revenues rose from 0.7 percent of GDP in 2003 to 0.8 percent in 2013, peaking at 1.2 percent in 2012.
  - Recommended actions:
    - Estimate and publish cost of tax incentives historically and medium term.
    - Subject incentives to good budgetary practice: simple eligibility criteria; beneficiary reporting to tax administration; appropriate penalties.
    - Evaluate incentives regularly (recommended cycle: every three to five years).
    - Favor neutrality unless clear market failures justify targeted incentives; consider alternatives to tax holidays and reassess sectoral-code incentives.
    - Aim for medium-term simplification of CIT toward a single rate (example: Tunisia’s 15 to 20 percent target, excluding BTH sectors).

### Dataset, definitions, and appendices (key points)
- Main data source: IMF staff reports and statistical appendices; methodology follows Mansour (2014).
- Total revenues definition: total of all tax and non-tax revenues; some stamp duties and registration fees recorded under Other Taxes when detailed data available.
- Direct taxes: include taxes on all income sources; Social security contributions excluded.
- Corporate Income Tax: includes profit taxes; effort made to separate corporate tax revenues from extractive activities (included in Resource Taxes).
- Indirect taxes: separated into General Sales Taxes, Excise Taxes, and residuals; VATs on net basis where refunds data available.
- Trade taxes: include external tariffs and ad-valorem service fees; some withholding on imports may be recorded as direct taxes.
- Resource Taxes: mainly CIT and royalties from oil, gas, mining; production sharing revenues included if paid into general fund.
- Other dataset variables: GDP at current prices; population; annual average inflation (CPI); income classification (WEO source).
- Appendix II group classification lists 19 countries and their grouping into Marghreb (non-resource), Mashreq (non-resource), Maghreb (resource), GCC (resource), Other/OME (resource), with country lists provided.

*Source: Excerpt from _wp1598 - References and associated sections (IMF staff reports, WEO, and author’s calculations) as presented in the provided content.*

### References .............................................................................................................

### _wp1598 - References

### Introduction and scope
- Review period: 1990-2012.
- Focus: revenue developments and taxation in the Middle-East and North Africa (MENA) region, with emphasis on non-resource tax policy.
- Objectives:
  - Analyze levels and composition of government revenues.
  - Assess current taxation structures against standard yardsticks of tax policymaking: revenue, equity, and efficiency.
  - Draw lessons for future reforms, while recognizing country-specific needs.
- Methodological note: countries partitioned into five groups based on three criteria: intensity of revenues from extractive industries (defined as having resource revenues exceeding 50 percent of total revenues for more than half of the period), geographical location, and trading blocs (notably the GCC customs union). Annex I provides country group lists (not reproduced here).

### Regional diversity and implications for tax policy
- MENA is heterogeneous across political systems, natural resource endowments, income levels, migration patterns, and legal/tax system inheritances—limiting the scope for one-size-fits-all reform prescriptions.
- Nevertheless, some tax policy changes may be appropriate for groups of countries with shared economic characteristics; the analysis emphasizes group-level contrasts.

### Key changes and comparative indicators (1990 vs. 2012)
- Population and migration:
  - "Population in the GCC group doubled over the period. It now exceeds the population of resource-rich Maghreb countries."
  - Migration implications: significant labor migration into GCC; policy debates include taxation of expatriates’ outbound remittances.
- Resource shares and fiscal impacts:
  - "The share of oil GDP in OME countries (Iraq, Iran, and Yemen) tripled. This helped push their per capita GDP from $3,925 to $11,704, and almost doubled government revenue per capita."
  - "The share of resource-GDP in total GDP in resource countries increased from less than 30 to nearly 45 percent."
  - Result: increased reliance on resource revenue in resource countries; real per capita revenues increased from USD 832 to USD 1,584 in resource countries.
- GDP per capita (PPP):
  - Increased in all groups, particularly in the non-resource group; distribution of that increase raises equity considerations for tax policy.
- Government revenues and tax revenues:
  - Non-resource groups: government revenues increased slightly from 19.2 to 21.7 percent of GDP overall.
  - Per capita real revenues: declined in the Mashreq group by about one-third, increased in the Maghreb group by one-third.
  - Tax revenues: "remained very low and stagnant in the resource group, and increased slightly in the non-resource group."

### Table 1 — Selected Indicators; 1990 and 2012 (key exact values preserved)
- 1990 (selected cells from table as presented):
  - Total population (millions): 109.5
  - Maghreb population (millions): 34.9
  - Mashreq population (millions): 74.7
  - GCC population (millions): 30.5
  - OME population (millions): 22.9
  - Share of oil GDP (%): Total 5.0; Maghreb 4.8; Mashreq 5.0; GCC 29.1; OME 28.7; Resource countries 10.7
  - GDP per capita (USD, PPP): Total 3,518.3; Maghreb 2,542.3; Mashreq 4,494.2; GCC 22,016.5; OME 6,550.5; Resource countries 34,928.5; Non-resource countries 3,925.4
  - Government revenues Percent of GDP: Total 19.2; Maghreb 25.0; Mashreq 17.2; GCC 29.0; OME 30.3; Resource countries 38.2; Non-resource countries 8.0
  - Per capita government revenues (USD): Total 35.6; Maghreb 21.8; Mashreq 42.0; GCC 832.5; OME 756.5; Resource countries 3,266.9; Non-resource countries 210.1
  - Government tax revenues Percent of GDP: Total 15.0; Maghreb 21.2; Mashreq 12.8; GCC 4.6; OME 10.7; Resource countries 2.8; Non-resource countries 2.7

- 2012 (selected cells from table as presented):
  - Total population (millions): 161.0
  - Maghreb population (millions): 47.1
  - Mashreq population (millions): 113.9
  - GCC population (millions): 224.9
  - OME population (millions): 44.6
  - Resource countries population (millions): 47.4
  - Share of oil GDP (%): Total 9.7; Maghreb 2.0; Mashreq 12.9; GCC 44.7; OME 46.2; Resource countries 49.6; Non-resource countries 30.8
  - GDP per capita (USD, PPP): Total 9,974.1; Maghreb 6,837.0; Mashreq 13,111.3; GCC 43,996.1; OME 18,218.4; Resource countries 68,734.8; Non-resource countries 11,703.8
  - Government revenues Percent of GDP: Total 21.7; Maghreb 27.0; Mashreq 19.4; GCC 41.7; OME 49.4; Resource countries 43.9; Non-resource countries 32.4
  - Per capita government revenues (1990 USD): Total 28.1; Maghreb 28.8; Mashreq 27.8; GCC 1,584.0; OME 996.6; Resource countries 5,370.7; Non-resource countries 429.5
  - Government tax revenues Percent of GDP: Total 17.1; Maghreb 23.6; Mashreq 14.3; GCC 4.0; OME 9.3; Resource countries 2.9; Non-resource countries 4.5

- Change 2012-1990 (selected exact percentage changes as presented):
  - Population change (%): Total 47.0; Maghreb 35.1; Mashreq 52.5; GCC 61.8; OME 46.4; Resource countries 107.5; Non-resource countries 55.1
  - Share of oil GDP change (%): Total 94.6; Maghreb -57.9; Mashreq 158.0; GCC 53.6; OME 61.2; Resource countries 31.2; Non-resource countries 187.0
  - GDP per capita (USD, PPP) change (%): Total 183.5; Maghreb 168.9; Mashreq 191.7; GCC 99.8; OME 178.1; Resource countries 196.8; Non-resource countries 198.2
  - Government revenues Percent of GDP change (%): Total 12.8; Maghreb 7.7; Mashreq 13.1; GCC 44.0; OME 63.1; Resource countries 14.9; Non-resource countries 305.7
  - Per capita change (%): Total -21.1; Maghreb 32.0; Mashreq -33.9; GCC 90.3; OME 31.7; Resource countries 64.4; Non-resource countries 104.4
  - Government tax revenues change (%): Total 14.5; Maghreb 11.6; Mashreq 12.2; GCC -13.4; OME -13.0; Resource countries 0.5; Non-resource countries 65.4

### Main analytical findings highlighted in the excerpt
- Population growth and migration have tax implications for both host (GCC) and sending countries; policy debates include taxing expatriate remittances.
- Resource-rich OME countries saw large increases in oil GDP share and per capita incomes, accompanied by large increases in government revenue per capita.
- Resource-GDP shares rose substantially in resource countries, increasing fiscal dependence on resource revenues.
- Non-resource countries experienced modest increases in government revenues as a percent of GDP, but distributional and per capita outcomes varied notably across groups (e.g., Mashreq per capita revenues fell by about one-third in real terms).
- Tax revenue performance:
  - Tax revenues remained low and stagnant in resource countries.
  - Tax revenues increased slightly in non-resource countries but remain a policy concern.

### Organization of the broader paper (as stated)
- Section II: discusses general trends in revenues.
- Section III: discusses trends in the context of each main component of the tax system.
- Additional supportive materials: Tables (Selected Indicators; External Tariffs; VAT; Distributional Impact of VAT; Excise Tax Revenues; Personal Income Tax Rates; Combined PIT and SSC Rates), Figures (trends in revenues, composition, trade taxes, corporate tax indicators, PIT indicators, fees and stamp duties), Box on "Reforming the CIT and Investment Tax Incentives in Tunisia: Politics and Signaling", and Appendixes (dataset description; list of MENA countries and group classification; appendix tables on VAT exemptions, investment tax incentives, and fees/stamp duties). These listings indicate the empirically grounded structure used in the study.

*Source: Excerpt from _wp1598 - References (PDF chapter/section).*

### Section IV combines results from II and III to identify key future challenges, including

### _wp1598 - Section IV combines results from II and III to identify key future challenges, including

### II. Looking back: trends in revenue levels and composition — regional overview
- Correlation between total and resource revenues: 0.99.
- Resource revenues:
  - Slightly below 15 percent of GDP at the beginning of the sample period.
  - Reached 31 percent of GDP in 2008.
  - Fell to about 20 percent of GDP after the 2008 crisis.
  - Rose to 29.5 percent of GDP in 2012.
- Tax revenues:
  - Fluctuated in a narrow range of 6 to 9 percent of GDP.
  - Level at the end of the period was slightly below its beginning.
- Non-tax (non-resource) revenues include numerous fees and stamp duties (transaction taxes such as registration of real estate property and motor vehicles, stamps on financial transactions).
- IMF (2013) estimate on energy subsidies (contextual):
  - Account for about 50 percent of worldwide total.
  - 8.5 percent of regional GDP.
  - 22 percent of total government revenues (based on pre-tax international prices).
- Political instability impact:
  - Average regional impact on revenues seems negligible.
  - Syria: 2010 is last available year; civil war may have had devastating impact (non-quantified).
  - Libya: non-resource revenues dropped from about 4 percent of GDP before 2010 to less than 1.5 percent in 2012.
- International comparison:
  - High-income countries’ averages are well above MENA for most of the sample period and less volatile (IMF, 2011).
  - Non-resource taxes in other resource-rich countries help increase revenues and reduce volatility.

### II. Looking back: trends in revenue levels and composition — composition changes
- Regional change in tax ratio (1990s to 2011-12) largely equals an uncompensated loss in trade taxes of about 1 percentage point of GDP.
- Sales and excise taxes remained relatively stable regionally.
- Corporate income tax (CIT) revenues increased but by less than the decline in trade taxes.
- Figure references (composition dynamics):
  - CIT excludes extractive industries in reported figures.

### II. Looking back: by selected country groups
- Country groups examined: non-resource Maghreb, non-resource Mashreq, resource Maghreb, GCC, OME.
- Non-resource groups:
  - Total revenues broadly similar between Maghreb and Mashreq historically.
  - Mashreq revenues declined sharply across all countries (Egypt, Jordan, Lebanon, and presumably Syria) by an average of about 5 percentage points of GDP.
  - Maghreb raises about 6.4 percentage points of GDP more in tax revenues on average for the period versus Mashreq.
  - Mashreq tax revenues stagnant; Maghreb tax revenues increased over 2005-12.
  - Mashreq taxation levels comparable to Low- and lower-middle-income countries (International Monetary Fund, 2011).
  - Maghreb taxation levels comparable to upper-middle-income countries.
- Resource groups:
  - Natural resources main source of government revenues since 2000.
  - Revenue levels: Maghreb and GCC significantly higher than OME group.
  - Tax revenues stagnant in resource groups except in Maghreb (Algeria has well developed tax system yielding tax levels similar to those in low-income countries).
  - Econometric finding cited: resource revenues crowd out partially non-resource revenues — about 20 cents on average for each dollar increase in resource revenue (Crivelli and Gupta, 2014).
  - OME exception: mean tax effort increased from 2.7 to 4.5 percent of GDP over the period, reflecting primarily an increase in non-resource revenue in Iran.
  - Correlations: resource and tax revenues correlation over entire sample is -0.73 for resource countries as a whole, but +0.3 for the OME group.
- Trade taxes currently at about 1 percent of GDP in many countries; trade liberalization largely completed; pressure to mobilize revenue will fall on domestic taxes.

### II. Looking back: composition of tax revenues within groups
- Maghreb (non-resource):
  - Sales taxes stagnated.
  - Drastic loss of trade taxes in the 1990s offset by an increase in income taxes in the 2000s — explains U-shape in tax revenue ratio.
  - Trade taxes around 1 percent of GDP currently.
- Mashreq (non-resource):
  - Loss of trade taxes largely compensated with domestic sales taxes.
  - PIT revenues remained relatively constant.
  - CIT revenue declined by about 1.5 percentage points of GDP.
- Resource groups:
  - Except GCC (limited use of CIT and trade taxes), tax revenue evolution more volatile.
  - Personal income tax (PIT) unimportant and stable over time; recent increase in Maghreb due largely to increase in public sector wages in Algeria.
  - CIT excludes extractive industries in composition data.

### III. Key policy issues — A. Trade liberalization and tariff policy (findings and implications)
- Tariff policy roles and interactions with domestic tax policy:
  - Tariffs generate revenues that can be hard to replace when liberalizing trade.
  - Tariff reductions can change composition of domestic tax bases.
  - Protection via tariffs may create economic rent that governments may wish to tax.
  - Investment tax incentives can be ineffective when tariff rates are high on imported intermediate and capital inputs.
  - Domestic tax policy needs to respond to trade liberalization for revenue, efficiency and equity purposes; coordination between tariff and tax policy is necessary.
- Trade taxes today:
  - Average about 1 percent of GDP in both resource and non-resource MENA.
  - Rarely exceed 2 percent of GDP.
  - Share in total tax revenues declined from about 26 (early 1990s) to 15 percent in 2012.
- Collected tariff rate (CTR) is defined as ratio of total trade taxes divided by value of imports.
- Resource countries:
  - Trade taxes and CTR declined from already low levels in early 1990s.
  - Import base expanded from 33 to over 55 percent of GDP.
  - GCC common external tariff of 5 percent applies to most imports.
  - Use of exemptions and tariff preferences prevalent.
- Non-resource countries:
  - Clear decline in both trade taxes and CTR; different paths for Maghreb and Mashreq.
  - Little sign of significant expansion of import base; early 2000s increase receded somewhat, particularly in Mashreq.
- Tariff structure complexity:
  - Average bound rates are very high in most countries; average MFN rates are not particularly low, especially in non-resource countries.
  - Maximum rates are very high; number of distinct tariff rates is high in all countries except Kuwait.
  - Low revenue take from tariffs explained in part by use of preferential treatments, exemptions and reduced rates.
- Trade performance context:
  - MENA exports increased since early 1990s but are two-thirds below potential (Behar and Freund, 2011).
  - Intra-MENA trade well below potential.
  - Determinants of constraints: high transportation costs, inefficient/slow customs clearance (Bhattacharya and Wolde, 2010).
- Policy recommendation bullets (preserving wording implications):
  - Flatten the tariff structure, reduce the number of rates, and reduce maximum rates to maintain or increase trade tax revenues.
  - Lessening need to provide tariff exemptions or reductions could improve overall progressivity of tax system since imported goods tend to be consumed disproportionately by well-off individuals.
  - Careful attention required to existing and contemplated FTAs and interaction with domestic consumption taxes when designing reforms.

### III. Key policy issues — B. Taxation of consumption: VATs
- Forms of consumption taxation in MENA: general sales taxes (destination-based VAT), excise taxes, and other specific transaction taxes.
- VAT origins:
  - Converted cascading sales taxes (Maghreb countries and Egypt) into VATs by expanding base to services and enhancing refunds.
  - New VATs designed without historical heritage (Lebanon, Jordan, OME group).
- VAT rates vary widely; Mashreq and OME rates tend to be lower than Maghreb rates.
- Standard rates and number of rates have increased in all countries except Algeria.
- Highest MENA standard VAT rate: 20 percent in Morocco.
- Registration thresholds:
  - Low in some countries relative to international norms (e.g., Algeria, Egypt, Morocco and Tunisia).
  - Algeria recently increased VAT registration threshold to 30 million dinars (roughly USD 310,000, valued at exchange rates prevailing at end of March 2015).
- VAT revenue contribution:
  - Contribution of MENA VATs to tax revenues ranges from 30 to 55 percent (except in Iran and Egypt, where it is much lower).
  - C-efficiency estimates suggest yield can be improved through base broadening, especially in Egypt, Algeria, Tunisia, and Iran.
- VAT tax expenditures (exemptions and lower rates) have sizable costs and raise concerns:
  - Equity implications: indirect tax targeting is costly; poor consumers benefit less than well-off.
  - Administrative problems and opportunities for tax avoidance (e.g., classification of imports).
  - For countries needing revenue, increasing other taxes may be more problematic and distortionary than scaling back VAT exemptions and low rates.
- Distributional evidence (table summaries preserved as findings):
  - Morocco VAT tax expenditures distribution across income quintiles: Q1 5.2, Q2 9.3, Q3 12.0, Q4 15.0, Q5 19.7, Total 38.8 (percent shares of VAT tax expenditures).
  - Tunisia VAT tax expenditures distribution (summary): Q1 n.a., Q2 7.7, Q3 12.7, Q4 17.0, Q5 23.2, Total 39.2.
  - Top quintile reaps much higher share (about 40 percent) of VAT tax expenditures; first quintile receive less than 10 percent.
- Policy implications and options:
  - Revenue from streamlining VAT tax expenditures could be used to increase support to the poor and possibly increase government revenue.
  - Social safety nets (SSNs), such as conditional cash transfers, are alternatives but are often poorly designed and underfinanced in MENA (Silva, Levin and Morgandi, 2012); short-term they may be unlikely to cope effectively.
  - SSNs can be more efficient than VAT tax expenditures and help improve acceptance of tax reform.
  - Gradual VAT reform option: reduce scope of VAT exemptions and low rates to a limited list of items (items, not broad categories) where share in poor consumption basket is very high — but politically difficult.

### III. Key policy issues — B. Taxation of consumption: Excise taxes (findings)
- Excise taxes discussed: tobacco, alcoholic and non-alcoholic drinks, petroleum products, cars, and mobile telephony.
- Excise revenues in percent of GDP declined significantly in all MENA countries since 2000, except in Egypt and Lebanon where they remained relatively constant.
- Reported excise revenue figures (2000-01 vs. 2011-12, percent of GDP; weighted two-year averages):
  - Resource countries:
    - Algeria: 2.1 (2000-01) -> 0.3 (2011-12)
    - Iran: 1.77 (2000-01) -> 0.32 (2011-12)
  - Non-resource countries:
    - Mauritania: 2.6 -> 0.88
    - Morocco: 3.79 -> 2.77
    - Tunisia: 3.16 -> 2.30
    - Egypt: 1.36 -> 1.67
    - Jordan: 0.83 -> 0.42
    - Lebanon: 3.51 -> 2.96
    - Syria: 0.26 -> 0.20 (2011-12 figure is for 2009-10)
- Data limitations: excise data not consistently available; reported figures are best attempts focusing on main excises.
- Drivers of excise decline include:
  - Policy choices: reduced rates or failure to index to inflation (e.g., Mauritania abolished major excises in 2006 anticipating oil revenue).
  - Market structures and price controls: tobacco often produced/distributed by government monopolies with fixed price formulas leading to monopoly rent and underestimation of revenue yield.
  - Specific country practices:
    - Tunisia: excises on alcoholic drinks are specific and not indexed to inflation; very high excises on certain high-alcohol drinks (over 650 percent) lead to little legal trade.
    - Lebanon: excise tax rates on alcoholic drinks are specific and very low; tariffs on imported drinks are high; alcohol excises raise very little revenue.
    - In GCC, no excise taxes, but CET applies 200 percent on alcoholic drinks and 150 percent on tobacco; alcohol tariffs yield little revenue due to religious restrictions and CET exemptions for diplomatic missions.
- Policy opportunity: GCC countries could mobilize important revenue from excises on tobacco, cars, and non-alcoholic drinks.

### III. Key policy issues — C. Taxation of business profits and investment incentives (introductory findings)
- Corporate income tax (CIT) role:
  - Important in MENA tax systems except in GCC where it applies mostly to foreign companies.
  - In resource countries (excluding GCC), currently generates between 1 to 1.5 percent of GDP in revenues (text cuts off after this point in supplied content).

*Italic line: Source: IMF staff reports and documentation, WEO, and author’s calculations, as presented in the provided content.*

### 2.3 to 4.3 percent in non-resource countries (Figure 7).

### _wp1598 - 2.3 to 4.3 percent in non-resource countries (Figure 7).

### Corporate tax trends in MENA
- Average top CIT rates fell markedly from the early 1990s to 2012:
  - early 1990s: about 35 percent in the Mashreq to over 55 percent in OME.
  - 2012: rates stood between 18 to 28 percent.
- Egypt increased its top rate from 20 to 25 percent in 2012.
- Despite declines in statutory CIT rates, CIT revenues increased in all groups since the early 1990s except in the Mashreq.
- The CIT contribution is high in one non-resource group (just below 20 percent of tax revenues), and comparable to its contribution in developing economies.

### Implicit CIT base and revenue decomposition
- The implicit CIT base (ratio of CIT revenues to the product of the standard tax rate and GDP) doubled since the early 1990s in groups where CIT revenues increased significantly (resource groups, excluding GCC, and the Maghreb).
- Interpretation: corporate profits as a share of GDP have increased and the revenue gain more than compensated for the reduction in statutory tax rates.
- Definition and algebraic expression provided in source:
  - The implicit CIT base is the base implied by revenues collected from the CIT, and is used as a proxy to the actual taxable base.
  - If P/GDP is the actual tax base as a share of GDP, the implicit tax base is (c*P)/(c*GDP), where c is the corporate tax rate.
  - This can be rewritten as (C/GDP)*(1/c), where the first term is potential CIT revenues as a share of GDP (approximated by actual revenues to GDP).
- Caveat: measure weakness arises from differences between potential and actual CIT revenues due to compliance factors.

### Relationship between top CIT and PIT rates and firm legal form
- Empirical studies indicate entrepreneurs’ choice of legal form depends on the relative levels of CIT and PIT.
  - If CIT > PIT, business activity is more likely to be carried through unincorporated entities; if CIT < PIT, more likely through incorporated entities.
- In MENA:
  - The ratio of CIT to PIT rates increased slightly during the 1990s to exceed one, but declined in the past decade to levels below or close to 1 in most countries.
  - The ratio is the lowest in the non-resource Maghreb, where both the implicit CIT base and CIT revenues rose most significantly.
- Implication: this pattern suggests—but does not establish causality—that the relationship between corporate and personal tax rates may distort the choice of legal form, contributing to weak PIT revenue.
- Additional note: because taxation of dividends is light, porous, or inexistent in MENA, double taxation of corporate profits is not an issue.

### Sectoral tax rates, rents, and effective taxation
- In the Maghreb, selected sectors were not reduced in line with the standard CIT rate:
  - Algeria: trading activities taxed at 25 percent rather than standard 19 percent until January 2015—when a single 23 percent rate starts applying.
  - Jordan and Tunisia: banking and telecoms taxed at 35 percent, instead of 14 and 25 percent, respectively.
  - Morocco: banking taxed at 37 percent instead of 30 percent.
- These sectors tend to be regulated with barriers to entry and may generate significant economic rent—telecoms noted as having grown significantly in the past decade.

### CIT rates, investment, and the role of effective tax rates
- Possible channel: lower CIT rates may have improved investment incentives and broadened the corporate tax base, but this is an empirical question complicated by many factors.
- For the Mashreq, Figure 8 shows some correlation (not causation) between CIT rate decline and private fixed capital formation.
- Relationship between CIT rate and foreign direct investment (FDI) as percent of GDP is ambiguous; factors like the 2008 crisis and political turmoil in the Mashreq likely dominated FDI collapses.
- Complication: all countries provide investment tax incentives, making the headline standard CIT rate of questionable relevance to investment decisions.
  - Suggestion: effective tax rates—particularly forward looking average effective tax rates (AETRs)—are more relevant for real investment decisions than headline CIT rates or effective marginal tax rates (EMTRs).
- Literature point: De Mooij and Ederveen (2008) find on aggregate the semi-elasticity of the corporate tax base with respect to the tax rate is -3.1—i.e., one point increase (decrease) in the CIT rate reduces (expands) the base by 3.1 percent.

### Investment tax incentives: features, effects, and political economy
- Scope and form:
  - All MENA countries provide tax incentives in investment laws or free-zone laws.
  - Free-zone laws have spread mainly since the 1990s; investment laws are older.
  - Incentives in general tax laws often include non- or low-taxation of agriculture, small business income, capital gains, and reinvested profits.
- Common features across MENA:
  - Most incentives take the form of temporary tax exemptions (most used); permanent tax exemptions are less used.
  - Holiday periods are generally 5 to 10 years, but go up to 20 (Egypt, Iran, Yemen), and 50 years (UAE).
  - Only a few countries explicitly reserve incentives to foreign investors (Iraq, Libya, and de facto GCC countries since they do not apply their CIT to domestic or GCC-national enterprises).
  - Incentives are broadly targeted across sectors and based on criteria such as location, job creation, and use of domestic inputs.
- Policy and political economy considerations:
  - Tax competition is cited as a key reason for providing incentives; this has led to a dual-economy where tax holidays coexist with relatively high standard rates.
  - Dualism causes:
    - Inequities between tax-favored and taxed firms, potentially discouraging entrepreneurship and reducing competition.
    - Rigidities that delay reducing standard CIT rates.
  - Political economy: legislating incentives in non-tax laws with complex eligibility and oversight by external committees may provide discretion to politicians in selecting beneficiaries.
    - Example: in some countries (e.g., Egypt) the tax administration does not have access to accounting statements of exempt firms, not even to verify transactions with taxable firms.
- Effectiveness evidence:
  - Empirical evidence on incentives’ effectiveness to attract FDI is mixed, with large variations across countries, sectors, and investment types.
  - Incentives that reduce investment cost directly (investment allowances, accelerated depreciation) have been relatively effective in some advanced economies.
  - Tax holidays, widely used in developing countries, rank low in business climate surveys and are often redundant—implying high cost in forgone revenue relative to effectiveness.
  - Certain incentives favoring exports may be inconsistent with WTO obligations because they amount to export subsidies.

*Source: IMF staff reports and documentation, WEO, and author’s calculations.*

### Box 1. Reforming the CIT and Investment Tax Incentives in Tunisia: Politics and

### Box 1. Reforming the CIT and Investment Tax Incentives in Tunisia: Politics and Signaling

### Background and pre-2007
- Standard corporate income tax (CIT) rate was 35 percent.
- Tax holidays (mainly for export profits, the “offshore sector”) of 10 years or more were followed by CIT taxation at half the standard rate; in practice:
  - Tax holidays were frequently renewed.
  - The half-rate was rarely applied.
- Holidays were provided primarily in the Investment Code and other sectoral laws and were perceived as instrumental in building the tourism and textile sectors (both geared toward European markets).
- No government empirical investigation or cost estimation of tax holidays in Tunisia had been undertaken.
- Dividends paid by either taxed or exempt firms were exempt from taxation in the hands of shareholders.

### 2007 reform proposal and political economy
- 2007 budget proposed:
  - Reduce the standard rate from 35 to 30 percent, except for banking, telecoms and hydrocarbon (BTH) sectors.
  - Tax activities benefiting from tax holidays at 10 percent (with grandfathering of existing investments).
- Reform rationale:
  - Improve neutrality by bridging the gap between onshore and offshore sectors from 35 to 20 percentage points as a first step.
  - Later goal: tax both onshore and offshore at a single rate of about 20 percent—roughly half of the pre-2007 rate.
  - Expected to be politically feasible and not very costly in revenue terms because excluded BTH sectors were major CIT contributors.
- Political outcome:
  - Reduction to 30 percent was approved.
  - The 10 percent rate on the offshore sector was postponed every year until 2014 due to offshore sector lobbying.
  - Offshore lobby arguments included competition from China and India (lower wages) in textiles and need to retain comparative advantage versus other domestic sectors.
  - Offshore lobby insisted post-holiday half-rate should be linked to the reduced rate (30 percent) rather than the previous 35 percent.
  - Result signaled that tax holidays under sectoral codes remained the government’s preferred tool for incentives; a lower uniform CIT rate for all sectors was not yet politically acceptable.

### 2014 outcomes and medium-term objective
- 2014 budget (transitional post-revolution government) proposed and approved:
  - Reduce the standard rate from 30 to 25 percent (keeping 35 percent for BTH sectors).
  - Approve a 10 percent rate on the offshore sector.
- Authorities publicly announced medium-term CIT objective:
  - Have a single rate of 15 to 20 percent applicable to all firms (except the BTH sectors).

### Regional context on tax expenditures and empirical evidence
- Most developing and a number of developed MENA governments do not estimate and publish the cost of tax expenditures regularly; Morocco is an exception:
  - Morocco has published tax expenditures since 2005 (with estimates for 2003 onward).
  - For CIT investment incentives, Morocco’s cost in forgone revenues rose from 0.7 percent of GDP in 2003 to 0.8 percent in 2013, peaking at 1.2 percent in 2012.
- Governments rarely study benefits of investment tax incentives; no MENA government is known to have done so.
- Empirical literature:
  - Studies consider relationship between tax incentives and incremental investment.
  - Even if positive, incremental investment from incentives may displace more efficient investment.
  - Tax incentives are recommended mainly where market failures exist; otherwise neutrality is preferred.
- In MENA, non-tax factors (barriers to entry, capital controls, public infrastructure, high statutory tariff rates) often matter more for investment than CIT.
- World Bank 2015 MENA Development Report and other studies support view that tax factors matter largely when non-tax factors are strong.

### Recommendations for reforming tax incentives and CIT policy
- Improve transparency and evaluate costs and benefits of incentives as a first step for MENA countries:
  - Estimate and publish the cost of tax incentives, both past and medium term.
  - Tax incentives should be subject to general rules of good budgetary practice, including:
    - Relatively simple eligibility criteria.
    - A minimum of information beneficiaries must report to the tax administration.
    - An appropriate penalty regime for non-compliance.
  - Subject incentives to thorough evaluations regularly (say every three to five years) to assess whether they accomplish objectives.
- Policy design guidance:
  - Favor neutrality in tax systems unless clear market failures justify targeted incentives.
  - Consider alternatives to tax holidays; reassess sectoral-code incentives that can be politically entrenched.
  - Aim for medium-term simplification of CIT toward a single rate (policy aspiration exemplified by Tunisia’s 15 to 20 percent goal, excluding BTH sectors).

### Key numeric values and policy-relevant figures (as reported)
- Pre-2007 standard CIT rate: 35 percent.
- Tax holiday duration commonly: 10 years or more.
- 2007 proposed reduced standard rate: 30 percent (BTH sectors excepted).
- 2007 proposed offshore post-holiday rate: 10 percent (postponed until 2014).
- Post-holiday “half-rate” concept: 50 percent of the standard rate.
- 2014 approved standard rate (Tunisia, transitional government): 25 percent (35 percent retained for BTH sectors).
- 2014 approved offshore rate: 10 percent.
- Medium-term announced CIT objective: single rate of 15 to 20 percent (except BTH sectors).
- Morocco: CIT investment incentives forgone revenues were 0.7 percent of GDP in 2003, 0.8 percent in 2013, with a peak of 1.2 percent in 2012.
- Recommended evaluation cycle for incentives: every three to five years.

*Source: Box 1, “Reforming the CIT and Investment Tax Incentives in Tunisia: Politics and Signaling,” from the provided IMF content unit.*

### REFERENCES

### _wp1598 - REFERENCES

### References
- Abed, George T. 1998, Trade Liberalization and Tax Reform in the Southern Mediterranean Region, Working Paper WP/98/49, (International Monetary Fund: Washington, DC).  
- Barrand, Peter, John Norregaard, and Mario Mansour (unpublished), Establishing a Tax Policy Capacity, Fiscal Affairs Department, International Monetary Fund.  
- Behar, Alberto, and Caroline Freund, 2011, The Trade Performance of the Middle East and North Africa, Working Paper No. 53 (World Bank: Washington, DC).  
- Bhattacharya, Rina, and Hirut Wolde, 2010, Constraints on Trade in the MENA Region, Working Paper WP/10/31 (International Monetrary Fund: Washington, DC).  
- Bird, Richard, and Eric Zolt, 2010, “Dual Income Taxation and Developing Countries,” Columbia Journal of Tax Law, 1:174-217.  
- Bird, Richard, and Pierre-Pascal Gendron, The VAT in Developing and Transitional Economies, Cambridge, 2007.  
- Besley, Timothy, and Torsten Persson, 2011, Pillars of Prosperity: The Political Economics of Development Clusters, Princeton University Press.  
- Bräutigam, Deborah, Odd-Helge Fjeldstad, and Mick Moore, eds. 2008, Taxation and State-Building in Developing Countries: Capacity and Consent, Cambridge University Press.  
- Brun, Jean-François, Gérard Chambas, and Mario Mansour, 2015, « Effort fiscal des pays en développement : une mesure alternative » (forthcoming).  
- Crivelli, Ernesto, and Sanjeev Gupta, 2014, “Resource blessing, revenue curse? Domestic revenue effort in resource-rich countries,” European Journal of Political Economy, 35, 88-101.  
- De Mooij, Ruud, and Gaëtan Nicodème, 2007, Corporate tax policy, entrepreneurship and incorporation in the EU, Discussion Paper TI2007-030/3 (Tinbergen Institute, Amesterdam)  
- De Mooij, Ruud, and Sjef Ederveen, 2008, “Corporate tax elasticities: a reader’s guide to empirical findings,” Oxford Review of Economic Policy, 24(4), 680-697.  
- European Commission, 2014, Tax Reform in EU Member States 2014, available online at:  http://ec.europa.eu/economy_finance/publications/  
- Keen, Michael, 2013a, Targeting, Cascading, and Indirect Tax Design, Working Paper WP/13/57 (International Monetary Fund, Washington, DC).  
- Keen, Michael, 2013b, The Anatomy of the VAT, Working Paper WP/13/111 (International Monetary Fund: Washington, DC).  
- Klemm, Alexander, and Stefan Van Parys, 2012, “Empirical evidence on the effects of tax incentives,” International Tax and Public Finance, 19:393-423.  
- International Monetary Fund, 2013, Energy Subsidies Reform: Lessons and Implications (Washington, DC).  
- International Monetary Fund, 2012, Fiscal Policy and Employment in Advanced and Emerging Economies (Washington, DC).  
- International Monetary Fund, 2011, Revenue Mobilization in Developing Countries (Washington, DC).  
- James, Sebastian, 2009, Tax and Non-Tax Incentives and Investments: Evidence and Policy Implications (World Bank: Washington DC).  
- Keen, Michael, and Mario Mansour, 2010, “Revenue Mobilisation in Sub-Saharan Africa: Challenges from Globalization II—Corporate Taxation,” Development Policy Review, 28(5): 573-596  
- Mansour, Mario, 2014, A Tax Revenue Dataset for Sub-Saharan Africa: 1980-2010, Working Paper I19 (FERDI: Clermont-Ferrand).  
- Mourji, Fouzi, 2011, L’incidence fiscale au Maroc – Cas de la TVA. Presentation at the FERDI conference on taxation and development, October 24-25, 2011; downloaded from www.ferdi.fr on December 16, 2014.  
- Organization for Economic Cooperation and Development, 2014, The Disbtributional Effects of Consumption Taxes in OECD Countries, Tax Policy Studies No. 22 (Paris).  
- Organization for Economic Cooperation and Development, 2006, Fundamental Reform of Personal Income Tax, Tax Policy Studies No. 13 (Paris).  
- Van Parys, Stefan, and Sebastian James (2010), “The effectiveness of tax incentives in attracting investment: panel data evidence from the CFA franc zone,” International Tax and Public Finance, 17:400-429.  
- Silva, Joana, Victoria Levin, and Matteo Morgandi, 2012, Inclusion and Resilience—The Way Forward for Social Safety Nets in the Middle East and North Africa (World Bank: Washington DC).  
- Sorensen, Peter Birch, 2005, Dual Income Taxation: Why and How? CESifo Working Paper No. 1551.  
- World Trade Organization, International Trade Centre, and United Nations Conference on Trade and Development, 2014, World Tariff Profiles 2014, downloaded from www.wto.org/statistics.  
- World Bank, 2015, MENA Development Report-Jobs or Privileges: Unleashing the Employment Potential of the Middle East and North Africa (Washington, DC).  
- Zee, Howell H., 2005, “Personal Income Tax Reform: Concepts, Issues, and Comparative Country Developments,” working paper 05/87 (International Monetary Fund: Washington DC)

### Appendix I. The Dataset: Sources and Description
- Main source: IMF staff reports and statistical appendices, produced by IMF surveillance and program missions. Methodology follows Mansour (2014).  
- Total revenues:
  - Defined as the total of all tax and non-tax revenues.
  - Where detailed data were available, certain stamp duties and registration fees (mainly real property registration and stamps on financial transactions and insurance contracts) were recorded as taxes under Other Taxes; otherwise, they were reported under Non-tax Revenues.  
- Direct Taxes:
  - Include taxes on all income sources (i.e. business profits, wages, portfolio income, and capital gains, etc).
  - Social security contributions are not included, since they are not paid into the consolidated fund.
  - Note: This omission is described as a significant weakness of the dataset since SSCs can be substantive both in terms of revenue and their incentive effects on employment.  
- Direct Taxes composition:
  - Direct Taxes are not always the total of corporate and personal income taxes.
  - Differences arise from taxes that cannot be allocated to either sub-category, including recurrent taxes on real property and taxes on portfolio income not reported as part of individual or corporate income.  
- Corporate Income Tax:
  - Tax imposed on corporate income in countries that have a corporate tax.
  - Can include taxes on profits from individual enterprises or any other business entities liable to a schedular profit tax.
  - Data to split profit tax by legal status of business entity are not usually available in IMF staff reports.
  - Significant effort was made to separate corporate tax revenues from profits of corporations and other business entities in extractive activities (oil and gas and mining); these were included in the series Resource Taxes.  
- Personal Income Tax:
  - Tax imposed on income of individuals from all sources in countries applying a comprehensive income tax on individuals, including tax on business profits.
  - In countries with a schedular income tax, the Individual Tax includes primarily taxes on wages (other than SSCs).  
- Indirect Taxes:
  - Separated between General Sales Taxes, Excise Taxes, and a residual that could not be accounted for.
  - VATs are included on a net basis where data on refunds are available.
  - Some excise-like taxes could not be accounted for separately and are included in Other Taxes.  
- Trade Taxes:
  - Include (1) revenues from a country’s external tariff on imports and exports; and (2) ad-valorem service fees.
  - Not always possible to distinguish various fees; certain fees that do not finance the budget of the levying country may be contested as own revenue.
  - Withholding on imports for purposes of income taxes may be included; applied in some countries to tax the informal sector, levied on imports but deductible against taxpayers’ income tax liability; revenues from this withholding are accounted for as direct taxes (levied by customs on behalf of the domestic tax administration).  
- Resource Taxes:
  - Include primarily revenues from the Corporate Income Tax collected from extractive activities in the oil and gas, and mining sectors, and royalties.
  - Revenues from production sharing agreements included to the extent paid into the government general fund (typically via a national oil company).  
- Other variables in dataset:
  - GDP at current prices; population; annual average inflation (as measured by the consumer price index); income classification.
  - Source of these variables is the IMF World Economic Outlook database, and in some cases the World Bank development indicators database.

### Appendix II. List of MENA Countries and Group Classification
- Total countries included in study: 19.
- Countries selected according to IMF Middle-East and Central Asia (MCD) Department coverage; Mauritania included; Israel and Turkey not included; Djibouti and Soudan excluded due to data limitations.
- Group classification (as presented):
  - Marghreb (Non-resource countries)
    - Mauritania
    - Morocco
    - Tunisia
    - Syria
  - Mashreq (Non-resource countries)
    - Egypt
    - Lebanon
    - Jordan
    - Qat ar
  - Maghreb (Resource countries)
    - Algeria
    - Libya
  - GCC (Resource countries)
    - Bahrain
    - Kuwait
    - Oman
    - Qatar
    - Saudi Arabia
    - UAE
  - Other (Resource countries)
    - Iran
    - Iraq
    - Yemen
Note: GCC: Gulf Cooperation Council; UAE: United Arab Emirates.

### Appendix Tables

- A1. MENA: VAT Main Exemptions under Current Laws
  - Algeria: Bread; milk; certain pharmaceutical products; newspapers; periodicals; books; sports materials produced in Algeria and acquired by the Sports National Federation.
  - Egypt: Restaurant foods (outside hotels); books and magazines; local dairy products; pasta and bread; meat and fish; domestic fruits and vegetables; baked sweets.
  - Jordan: Bread; olive oil; electricity; water; education.
  - Iran: Unprocessed agricultural products; flour; bread; meat; sugar; rice; cereals; soya; milk; cheese; vegetable oil; baby food; books and notebooks; medical products and services; education services; pet .foods
  - Lebanon: Medical services; education; agricultural farm supplies; all food in raw state; Bread, flour, meat, fish, yogurts, rice, sugar, salt and vegetable oil; books, magazines and newspapers; gas for household use.
  - Mauritania: Medical services; basic foodstuffs, including bread, meats, vegetables, etc.
  - Morocco: Basic food stuffs and items for which prices are regulated; newspapers, periodicals, books and educational audio-visual products.
  - Tunisia: Basic food stuffs such as bread, milk, four, etc. and items for which prices are regulated; pharmaceutical products; newspapers, periodicals, books and educational materials.
  - Yemen: Books; newspapers and periodicals; medical services; transportation of individuals.

- A2. MENA: Key Features of Investment Tax Incentives
  - Algeria
    - Legal Basis: Investment Law, 2001; Free Zone Law, 1993
    - Type of CIT Incentive: Holidays; Exemptions
    - Incentive Period (Years): 8 to 10; n.a.
    - Comments: Most sectors based on job creation; and investments in clean technologies that protect the environment, save energy, and lead to sustainable development. Investment in free zones.
  - Bahrain
    - Legal Basis: Investment Law, 1990
    - Type of CIT Incentive: n.a.
    - Incentive Period (Years): n.a.
    - Comments: No tax incentives since Bahrain does not apply a CIT.
  - Egypt
    - Legal Basis: Investment Law, 1997
    - Type of CIT Incentive: Holidays
    - Incentive Period (Years): 5 to 20
    - Comments: Period depends on location of investment. Free zone holidays for certain sectors were terminated in 2008 (fertilizers; iron and steel; natural gas).
  - Iran
    - Legal Basis: Investment Law, 2003
    - Type of CIT Incentive: Rate cuts; Holidays
    - Incentive Period (Years): 3 to 10; 20
    - Comments: Varies by sector, and include the mining sector. Mostly for investment in remote low-income regions.
  - Iraq
    - Legal Basis: Investment Law, 2006
    - Type of CIT Incentive: Holidays
    - Incentive Period (Years): 15
    - Comments: Foreign investors.
  - Jordan
    - Legal Basis: Investment Law, 1985
    - Type of CIT Incentive: Holidays; Rate cuts
    - Incentive Period (Years): 2; 10
    - Comments: Based on location. After the two-year holiday period expires.
  - Kuwait
    - Legal Basis: Investment Law, 1998; Free Zone Law, 1995
    - Type of CIT Incentive: Holidays
    - Incentive Period (Years): 10; 10
    - Comments: Foreign investment.
  - Lebanon
    - Legal Basis: Investment Law, 1980
    - Type of CIT Incentive: Holidays
    - Incentive Period (Years): 10
    - Comments: Mostly targeted to manufacturing activities.
  - Libya
    - Legal Basis: Investment Law, 1997; Free Zone Law, 1999
    - Type of CIT Incentive: Holidays; Exemptions
    - Incentive Period (Years): 8; 8
    - Comments: Foreign investment in selected sectors. Export-oriented investment in selected sectors.
  - Mauritania
    - Legal Basis: Investment Law, 2012
    - Type of CIT Incentive: Rate cuts
    - Incentive Period (Years): n.a.
    - Comments: Export-oriented activities.
  - Morocco
    - Legal Basis: Investment Law, 1981; Free Zone Law, 1994
    - Type of CIT Incentive: Holidays
    - Incentive Period (Years): 5; 5
    - Comments: Export activities and agriculture. Export activities located in free zones.
  - Oman
    - Legal Basis: Investment Law, 1981; Free Zone Law, 1994
    - Type of CIT Incentive: Holidays
    - Incentive Period (Years): 5 to 10; 30
    - Comments: Most sectors. Investment in specified zones.
  - Qatar
    - Legal Basis: Investment Law, 1989; Free Zone Law, 2005
    - Type of CIT Incentive: Holidays
    - Incentive Period (Years): 6 to 10; 20
    - Comments: Foreign investors (domestic investors are not subject to the CIT). Enterprises operating in free zones.
  - Saudi Arabia
    - Legal Basis: Investment Law, 1962
    - Type of CIT Incentive: Holidays
    - Incentive Period (Years): 10
    - Comments: Eligibility is based on physical location.
  - Syria
    - Legal Basis: Investment Law, 1991; Free Zone Law, 1972
    - Type of CIT Incentive: Holidays; Exemptions
    - Incentive Period (Years): 7; n.a.
    - Comments: Industrial and tourism sectors. Based on use of local employment and inputs.
  - Tunisia
    - Legal Basis: Investment Law, 1989; Free Zone Law, 1992
    - Type of CIT Incentive: Holidays; Rate cuts
    - Incentive Period (Years): 5 to 10; 10
    - Comments: Selected sectors and export activities. Based on location in special economic parks.
  - UAE
    - Legal Basis: Investment Law, 1965; Free Zone Law, 1965
    - Type of CIT Incentive: Holidays
    - Incentive Period (Years): 5; 50
    - Comments: Selected sectors (foreign investors; CIT does not apply to domestic investors). Free zones (foreign investors; CIT does not apply to domestic investors).
  - Yemen
    - Legal Basis: Investment Law, 2010; Free Zone Law, 1993
    - Type of CIT Incentive: Holidays; Rate cuts
    - Incentive Period (Years): Permanent; 25
    - Comments: Mainly agriculture and export activities. Various sectors.
  - Sources: Compiled from IMF staff reports and other documents, International Bureau for Fiscal Documentation, and countries' laws.

- A3. MENA: Summary of Main Fees and Stamp Duties
  - Algeria
    - Transfer and other fees: 5% on transfer of immovable property, plus 1% registration fee. 2.5% on transfer of shares and bonds.
    - Stamp duties: On most administrative and private documents and deeds; rates are specific and depend on size and type of documents.
  - Bahrain
    - Transfer and other fees: n.a.
    - Stamp duties: n.a.
  - Egypt
    - Transfer and other fees: 2.5% on transfer of immovable property.
    - Stamp duties: On most private contracts at various specific or ad valorem rates. 1% on life insurance premiums, and 10% on other insurance types. 0.1% on sale of Egyptian and foreign security made through Egyptian foreign exchanges, applicable to both sellers and buyers.
  - Iran
    - Transfer and other fees: 0.5% on transfer of securities traded on the stock exchange, and 4% on privately traded securities.
    - Stamp duties: On most private contracts at various specific or ad valorem rates, including financial and insurance contracts.
  - Iraq
    - Transfer and other fees: n.a.
    - Stamp duties: n.a.
  - Jordan
    - Transfer and other fees: n.a.
    - Stamp duties: On certain documents and deeds, ranging between 0.3% and 0.6% of the face value.
  - Kuwait
    - Transfer and other fees: n.a.
    - Stamp duties: n.a.
  - Lebanon
    - Transfer and other fees: 6% on transfer of immovable property.
    - Stamp duties: On most administrative and private documents and deeds; rates depend on size and type of document.
  - Libya
    - Transfer and other fees: 5% on transfer of immovable property.
    - Stamp duties: On most private contracts at various rates proportional to face value of contract.
  - Mauritania
    - Transfer and other fees: 2% on immovable property for first-time registration and 1% on subsequent transfers. 2.5% on transfer of shares; 1% on bonds. 14% financial transaction tax on all interest and commissions realized by financial institutions for services rendered to their clients (this is substitute for the exemption of such services from VAT; it applies at the same rate as the VAT).
    - Stamp duties: On most administrative and private documents and deeds; rates depend on size of documents. 10% on most (life and other) insurance contracts.
  - Morocco
    - Transfer and other fees: 6% on transfer of immovable property. 3% on the value of some transfers of financial securities.
    - Stamp duties: On most administrative and private documents and deeds independently of the size and type of document.
  - Oman
    - Transfer and other fees: 3% on transfer of immovable property.
    - Stamp duties: n.a.
  - Qatar
    - Transfer and other fees: n.a.
    - Stamp duties: n.a.
  - Saudi Arabia
    - Transfer and other fees: On certain legal documents.
    - Stamp duties: n.a.
  - Tunisia
    - Transfer and other fees: 5% on transfer of immovable property, plus 1% registration fee.
    - Stamp duties: On most administrative and private documents and deeds; rates depend on type of document. 5% to 10% on insurance contracts.
  - UAE
    - Transfer and other fees: 1% on land registration.
    - Stamp duties: On certain legal documents.
  - Yemen
    - Transfer and other fees: 1% on transfer of immovable property.
    - Stamp duties: n.a.
  - Source: International Bureau for Fiscal Documentation.

*Content compiled from _wp1598 - REFERENCES (source PDF).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2015/_wp1598.pdf_