Since the end of the 1960s, the main sectors of the Moroccan economy have benefited from tax exemptions within the framework of investment plans. Oxfam in Morocco looked at these exemptions to measure their impact.
Oxfam in Morocco in its latest report examines tax exemptions in the real estate, agriculture and private education sectors, with the aim of highlighting the exemptions they enjoy and their relevance. The report also recalls that tax exemptions are criticized by the Court of Auditors, as well as the report on the New Development Model which calls for their reorientation towards sectors in real difficulty, while these tax loopholes have increased by 6% in 2021 compared to 2020.
According to estimates, tax exemptions represented around 3% of GDP in 2018, or 29 billion dirhams, “practically double the budget allocated to education and health”. While the exemptions weigh heavily on public finances, the sectors concerned have not shown a significant difference in terms of investment between highly exempt sectors and others practically not exempt.
Costly exemptions with no real justification
If these exemptions are justified by “an economic handicap due to a state failure, a policy of positive discrimination and the desire to increase competitiveness in the face of foreign tax competition”, Oxfam stresses that “the exempt sectors do not display in in reality, no situation justifying the tax expenditures granted to them”. Despite the stated objectives, the exemptions in these three sectors do not cover Morocco’s needs.
Far from being “a sector which should benefit from a positive discrimination policy”, the real estate sector represents 47% of the gross fixed capital formation of the Moroccan economy, Moroccan agriculture displays “the best revealed comparative advantages in the MENA zone and going beyond countries like Spain and Turkey ”and private education“ remains limited to large cities, [with only 18% of the Kingdom’s municipalities covered], and concerns less than 16% of Moroccan children”.
While the tax obstacle to entrepreneurship can be overcome with an improvement in the tax administration / business relationship rather than with tax exemption mechanisms, these exemptions “have no significant impact in the decisions of companies to invest or to recruit” according to Oxfam.
Moreover, the tax element does not appear to be the biggest barrier to investment for actors, far behind access to finance. In this sense, in real estate, 55% of players consider financing to be the greatest constraint on investment compared to only 11% taxation. Indeed, tax exemptions decreased by 40% between 2013 and 2019, but the growth rate of real estate increased by 5.5% in the same period.
The exemptions in these sectors even caused, according to the report, several distorting effects, namely a shift of investment between industry and real estate, “depriving the Moroccan economy annually of nearly 1.7% of the value industrial added is nearly 2.1 billion dirhams”. Also, in the same sector, operators favor the most profitable segments to the detriment of the real needs of citizens, also causing a “waste of public money and a contribution to the accentuation of inequalities” and a concentration of the sector on big cities.
Faced with this situation, Oxfam recommends “moving towards a logic of budget support as part of a global approach giving more importance to contractual direct aid than to unrequited tax exemptions”, such as direct budget support action in the framework of the State contribution for social housing operations rather than an exemption.
Also, it is necessary to assess the impact of tax exemptions in achieving the performance objectives of sector strategies, to guarantee the transparency of the process of adopting tax exemptions while including them in a well-determined timetable to avoid their automatic renewal and to examine other alternatives to tax exemptions, taking into account in particular international good practices.
In addition, Oxfam recognizes the value of “keeping the exemptions that are economically efficient and those that take into account the real needs of citizens” but recommends “putting in place the milestones of a public incentive system encouraging innovation, research and new emerging and highly rewarding sectors”.