By Samia Nasri, Business Lawyer, Tunisia
On an International level, global growth (at a rate of 3.6% in 2017) and economic recovery have been registered. In Tunisia, despite the fact that the country is still struggling with having its main economic indicators fall due to political and social circumstances, and despite other difficulties faced by the country, Tunisia has succeeded in making some progress in the last few years. Indeed, the growth rate in 2017 recorded a significant increase compared to previous years (2.3% compared to 1% in 2016 and 0.8% in 2015).
In order to confront Tunisia’s economic, political and social difficulties by raising more funds (mainly through taxation) and to improve upon the economic progress that had already been made (mainly through investment and private initiative incentives), the Tunisian Finance Law of 2018 (“the Law”) was passed on 9 December 2017.
The Finance Law (in French: “Loi de Finances”) is a legal act that mainly authorises the expenditure of government funds and set funds aside for specific expenditures.
The Law was drawn up by the Ministry of Finance (in conformity with Decree No. 75-316 of 30 May 1975 setting out the powers of the Ministry of Finance) in the form of a decree, to ensure, in conformity with the legislation and regulations already in force, the implementation of the State budget, subsidiary budgets, administrative public establishment budgets, as well as special treasury funds.
Although the Law was subject to many criticisms and discussions from October 2017, it was finally adopted on 9 December 2017 with 134 votes for the Law, 21 against the Law and 12 abstentions.
KEY PROVISIONS OF THE LAW
- Increase in VAT rates
Pursuant to Article 43, VAT rates have been increased by 1% as follows:
- From 6% to 7% for the private sector, local transport, tourism and handicrafts, education and vocational training, health services and basic medical services, medicines locally manufactured, restaurants and cafés and environmental services and non-locally produced equipment and any equipment used to control energy;
- From 12% to 13% for professional services (lawyers, experts, consultants, accountants, architects, etc.), petroleum products, low-voltage electricity for domestic use, low-voltage electricity used to operate irrigation water pumping equipment as well as 4-horsepower passenger vehicles; and
- From 18% to 19% for goods and services that are not subject to 6% or 12% VAT rate
b. Extension of the application of VAT to residential housing:
Pursuant to Article 44 of the Law, from 1 January 2018, residential housing (built by property developers), except for low-income housing, is subject to 13% VAT. Such percentage will be increased to 19% on 1 January 2020.
The following changes will also be effected:
- Increase in the tax on dividends from 5% to 10% (Article 46);
- Increase in stamp duty on invoices, phone communications, and internet (Article 50);
- New obligations related to the certificate of non-submission of VAT;
- Increase in consumption duties on certain products (sugar products, chocolate products, certain alcoholic products);
- Increase of registration fees from 20 to 25 dinars per page (Article 50); and
Modification of the income tax scale.
c. Changes to personal income and corporate tax scales
Pursuant to Article 53, personal income tax and corporation tax scales will change as follows:
Personal Income tax scale:
0 to 5.000 Dinars 0%
From 5.000 to 20.000 Dinars 27%
From 20.000 to 30.000 Dinars 29%
From 30.000 to 50.000 Dinars 33%
More than 50.000 Dinars 36%
The following scale is applicable for income realized from 1 January 2018:
Corporation tax scale:
Minimum tax of:
- 300 dinars for entities subject to corporate tax of 35%.
- 200 dinars for entities subject to corporate tax of 25%, 20% or 15%.
- 100 dinars for entities subject to corporate tax of 10%.
- 200 dinars for enterprises and companies totally exempt from corporate tax.
Other taxation related changes include:
- Extension of the list of companies submitted to corporation tax of 35% (Article 29);
- Applying a conjectural contribution for financial establishments (Article 52); and
- Applying a stay duty in hotels (Article 49).
a. Corporate Incentives
The Law has outlined several corporate incentives, which include:
- Reduction of the corporate tax rate to 20% for small and medium sized companies (Article 15)
- Exoneration of incomes and benefits for newly created companies
- Support for the recruitment of young graduates (Article 19), for example through contributions to the National
- Social Security Fund, which will now be provided by the State for three years following the date of recruitment.
- Unification of the tax regime for companies established in the regional development zones (Article 20).
- Specifically, the Law has extended the 2/3 deduction of the tax base on personal income tax and corporation tax at a reduced rate of 10% to companies having obtained a certificate of deposit of investment declaration before 1 April 2017.
- Reduction of the conditions required to benefit from the reinvestment tax advantages.
b. Raising the age limit for young promoters:
Under the Law, the age of a “young promoter” (defined as a recent graduate who personally and permanently assume the responsibility of managing his project) has been increased from 30 to 40 years old, which may allow young promoters to benefit from many incentives dedicated to them.
REACTIONS TO THE LAW
In spite of the incentives contained in the Law, it, as it had during its drafting, has faced negative reactions following its passage.
Experts in many fields (economic, legal, financial, social fields) have considered that this law has adopted the easiest solution to solve the country’s financial problems just as previous laws had – through increasing taxes – and has not presented in depth solutions such as fighting tax evasion and parallel markets.
For these experts, this Law was not founded on any impact studies of the previous laws or legislative measures taken before and, in particular, in the last seven years (post revolution).
For such experts this Law also does not fit with the roadmap drawn by Tunisia for 2020 and the ambitions expressed by the Tunisian government to help economic recovery. The tax burden on businesses is already quite significant and the measures brought by the Law will make it unsustainable.
These measures, along with previous ones, have created an environment of instability for the legal and fiscal rules governing investment, with a resulting lack of visibility. This has had a negative impact on the country’s investment environment rather than improving that environment, which would help economic recovery.
Finally, and to end with a positive note, despite the difficulties faced by Tunisia in the last seven years, and the negative impacts of the last tax measures, Tunisia is still looking for better solutions to achieving economic recovery. With this aim, Tunisia has enacted new laws to improve administrative services (e.g., consulting and delivering online trade registers, birth certificates, etc.) and private initiatives that we may have the opportunity to discuss in a follow-on article.