Several Moroccan businesses appeared to have figured out how to evade taxes for years by setting up their company headquarters in the Kingdom’s southern provinces, but the General Taxes Directorate is now zeroing in on these businesses, signaling the end of a decades-long tax evasion era.
The authority found that certain businesses were operating under fraudulent addresses in southern regions to avoid paying taxes, recently highlighted again by Nadia Fettah Alaoui, the Moroccan Minister of Economy and Finance, who responded to a parliamentary question on this issue on Monday.
The tax authority observed that these businesses use a city in the southern region as their social headquarters while conducting their business, industry, or service operations elsewhere in the country.
Many similar schemes had been brought to light over the years, from companies in various sectors.
According to a study from the global alliance for tax justice in 2021, Morocco’s tax loss for that year totaled USD 876.6 million.
This constitutes the most recent estimation, as the organization was unable to procure data for the previous year.
Historical and legislative context
Morocco has long relied on a variety of advantages in several fields to attempt and balance economic prosperity in all regions, primarily tax exemptions and custom concessions, as part of its objective of supporting growth in the southern regions and decentralizing capital from the north-western axis.
Southern regions in particular were granted tax exemptions through a royal decision from late King Hassan II. The objective of this tax tradition, which has existed since the 1970s, is to boost investment in southern Morocco.
Specifically, the regions of Laayoune-Sakia El Hamra and Dakhla- Oued Ed-Dahab benefit from a particularly advantageous tax program for economic operators who choose to settle in this part of the national territory.
Under the reign of King Mohamed VI, and with the launch of a new economic development model and predeceasing advanced regionalization, ensuring economic prosperity on the regional levels is among national top priorities.
For a while, companies operating in southern regions peacefully conducted their business with no need for a tax identifier. As of 2015, the document became mandatory to engage in public deals for businesses registered in the south.
Entrepreneurs in the area, and obviously those who are fraudulently registered there as well, were unfavorable to the decision.
In 2017, a memo by the General Taxes Directorate explained that companies installed and operating “only” in the southern provinces, can obtain their tax identifiers by following three simple procedures after providing specific documents, adding on to the document becoming an absolute must-have requirement.
Over the years, several reports highlighted the lack of tax revenues in the southern region despite hosting a significant number of registered, thriving solvable companies.
Addressing the matter
Estimations dating back to 2019 showed that considerable inequalities in the distribution of taxes in Morocco persist. Regrading corporate income tax, 80% of revenues are contributed by 0.8% of firms.
For income tax, the rate is around 15% of firms contributing to income tax.
The recent events and revelations, according to the Moroccan Minister of Economy and Finance, prompted the tax authority to tighten control over those who avoid paying taxes, and to legitimize their acquisition of a tax certificate allowing them to participate in public deals.
Nadia Fettah Alaoui stated that these measures were strengthened by the July 28, 2017 issuance of a regulatory memorandum that established the principle of equality with the rest of the national companies, in the documents required to participate in public deals, to prevent any attempts to maintain the privileges granted to southern regions in terms of tax exemptions.
This relatively new procedure includes certificates of the authorized transaction number and certification of the proceeds and legal tax status.
Government intervention
In order to standardize and simplify distributing certificates to businesses based in Morocco’s southern regions, the same regulatory memorandum entails that acquiring them is done on the basis of a request presented by the individuals concerned.
Fettah disclosed that the Regional Directorate of Taxes has, since 2018, dealing with files of significant businesses that are based in the southern provinces but conduct their operations outside of the region in order to broaden the tax database, help achieve fair competition between companies, and provide fiscal justice.
According to the Minister, tax control operations are carried out in the interests of the General Taxes Directorate by checking documents or conducting on-the-ground investigations.
These operations frequently result in the signing of amicable agreements between the tax administration and those who are obligated to pay to ensure collecting the tax duties
The minister noted that although the number of these businesses is still very small, the tax authority was able to resolve the tax issues of businesses trying to avoid paying taxes by setting up false headquarters for them in various southern cities while their operations were actually conducted entirely or mostly outside of the region.
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