Moroccan Government Looks to Taxes to Cut Deficit

A deserted street in Moroccan capital Rabat, as the country is put under lockdown. (AFP)

Morocco aims to increase tax revenues to better finance public policies and cut the fiscal deficit, its finance minister told Reuters on Wednesday, after the COVID-19 pandemic caused a surge in spending.

A new law to increase the tax base, ensure equity, fight fraud, introduce a carbon tax and impose a fairer VAT system for business was approved by the Parliament on Tuesday.

The new legislation “aims at reinforcing the efficiency of the tax system as means of financing public policies,” finance minister Mohamed Benchaaboun told Reuters in an email.

Morocco has incurred a fiscal deficit of 7.6% in 2020 and expects to cut it to 6.3% this year, compared to the pre-pandemic target of 3%.

In 2020, Morocco collected 144.8 billion dirhams ($16.2 bln) in net tax revenue, down 5.4% compared with 2019, official data showed.

Nearly 50% of income tax, company tax and VAT combined is paid by just 140 companies, according to official figures. Just 1% of companies account for 80% of corporate tax revenue.

Morocco loses up to $2.45 billion due to tax evasion and fraud by multinationals, Oxfam said in a report in 2019.

Besides the tax reform, the government has also submitted a draft law for Parliament’s scrutiny on reforming, merging or dissolving state bodies to reduce their dependency on a state budget.

Government debt was sustainable despite a rise to 76.4% of GDP in 2020 from 64.8% in 2019, Benchaaboun said, citing low average cost and limited exposure to risks.

Foreign debt represented 24% of overall government debt made up of 61% in euro and 34% in dollar and currencies pegged on it, the minister said.

He declined to answer questions about the value and timing of the upcoming bond that the government plans to raise which local media, Assabah, said last week could amount to $1 billion.

Morocco can consider renewing a precautionary credit line from the International Monetary Fund as an insurance against external shocks although “there is no immediate need for it” as foreign exchange reserves cover over seven months of import needs, he said.

Morocco has taken a second step in its currency reform extending last year the band in which the dirham fluctuates to 5% from 2.5%, in a bid to strengthen “the economy’s resilience to external shocks and boost its competitiveness.”

Morocco “is committed to this reform and will continue its gradual and cautious approach,” he said.