Report – Closed Seminar on the 2018 Finance Bill and its Impact on the Economy

Report – Closed Seminar on the 2018 Finance Bill and its Impact on the Economy
Fri, 01/12/2018 - 14:33
Report – Closed Seminar on the 2018 Finance Bill and its Impact on the Economy
Closed Seminar on the 2018 Finance Bill and its Impact on the Economy
Thursday November 23, 2017
Africa Hotel, Tunis, Tunisia
The Center for the Study of Islam and Democracy organized a symposium on the 2018 Finance Bill and its impact on the Tunisian economy on Thursday, November 23, 2017 at the Africa Hotel in Tunis. Speakers included Mr. Taoufiq Rajhi, Minister for Major Economic Reforms, Mr. Elias Fakhfakh, former Minister of Finance, Mr. Taoufiq Aribi, Chairman of the Tax Committee of the Tunisian Union for Industry, Trade and Handicrafts (UTICA) and Mr. Ahmed Bouzguenda, President of the Arab Institute of Heads of Institutions (IACE). The session was moderated by Mr. Moncef Cheikh Rouhaou, Professor of International Finance in Paris
The first speaker, Mr. Taoufiq Rajhi, pointed out that the major trends for 2018 were not obvious enough to convince Tunisians of the necessity of making certain choices and of their consequences. He argued that the Finance Bill can only be understood in reference to the economic and social context in Tunisia since 2011. Mr. Rajhi explained that work on the 2018 Finance Bill had begun since December 2016 and that the bill is an attempt by the Tunisian Government to confront economic problems. However, the failure to reach agreement with the International Monetary Fund had proved to be a major obstacle.
As for solutions, Mr. Rajhi pointed to the need to rethink fiscal policies and to find a financial margin within the public budget. He argued that the budget lacks a margin that enables the state to address disparities in regional development and unemployment, improve the quality of public services and support new businesses. He stated that the loss of the margin within the public budget is mainly due to high public sector wages for 2018, which are estimated at a total of 16.385 billion dinars, as well as the loss of the compensation fund due to developments on the global market and the problems within the subsidies policy.
To address these economic problems, Mr. Rajhi identified a number of solutions that he described as essential. First, reviewing the public sector wage bill, in terms of both the total amount and salary scales. The Government will launch negotiations with various parties next May to ensure that the increase in wages does not harm the budget and does not exceed 12.5%. As for the number of employees, the Government is seeking to encourage voluntary departure by giving staff three-year grants, in addition to accepting early resignations and only replacing one retiree out of four. Secondly, reviewing the status of state-owned enterprises, especially public transport companies, due to the state’s inefficient pricing policies. Thirdly, a serious effort by the Government to search for a new approach to taxation policies and to control long-term spending (with an eye on 2020) and translate this into the budget, so that 2018 will be the year that we begin to gradually reduce spending without implementing a policy of austerity.
Mr. Rajhi also stressed that the Government should seek to achieve a number of key indicators in 2018, including reducing the trade deficit to 3%, lowering the salary scale to 12.5% and reducing public debt to less than 70%. He concluded by arguing that the aim of the Finance Bill is to provide maximum flexibility to address problems related to development.


The second speaker, Mr. Elias Fakhfakh, attributed the annual conflict over the Finance Bill to the following reasons. First, the absence of clear public policies, which leads to a general debate about the policies to be adopted in the finance bill. Second, the excessive focus on spending and not on revenues necessitates the introduction of other measures to complete the state budget. Third, there is a lack of harmony between the Five-Year Plan and the Finance Bill as a result of the assumptions made by politicians, which are far from reality. Fourth, the absence of a serious assessment of previous economic procedures (registration of cash revenues and cash transactions, reduction in the customs tariffs, etc.). Fifth, inconsistencies between economic policies and regional development policies, as evidenced by the creationof new enterprisesthat have been granted tax-exempt status.
Mr. Fakhfakh questioned the Government’s failure to explain the reasons for the decline in the value of the dinar, which pushed up borrowing within the budget by 20 points, rising from 36 billion dinars in 2016 to 76 billion dinars in 2017, and pushing up inflation rates due to external factors, which negatively impacted exports. He also pointed out that the tax system was frozen due to the suspension of tax collectionin certain sectors and the reassertion of control over the public wage bill against gross domestic product.
Mr. Fakhfakh argued that there are a number of reasons why Tunisia has been unable to achieve the expected growth rate forecast by the Government. First is the absence of a culture of paying taxes. Second, structural deficits within companies, which are incapable of creating an economic revolution, which has led to more tax evasion. Over 50% of companies do not pay taxes, including 85% of small businesses, either due to tax evasion or ongoing financial losses. It is, therefore, necessary to highlight the problems faced by companies that are unable to manage high levels of bureaucracy or those that serve the interests of lobbies and influential parties. Third, a weak economic base and lack of transparency in the public market. Fourth, a high inflation rate of 6% in 2017 due to the high price of oil. This has led to the imposition of a higher value-added tax rate, which will cause the state major losses. This will also have an impact on the middle class, which carries most of the tax burden, leading to greater social tensions. In conclusion, Mr. Fakhfakh argued that the current situation calls for structural reforms to the tax administration and a real reform of the subsidies system in order to direct assistance to those who deserve it


The third speaker, Mr. Taoufiq Aribi, focused his intervention on taxation, calling for a review of the entire tax system. He questioned the appropriateness of leaving taxation in the hands of the bureaucracy, who carry out all tasks from drafting the law, collection of taxes, determining disputes, and guaranteeing securing the resolution of litigation. He questioned whether bureaucrats have the objectivity and impartiality needed to control the state treasury and protect tax payers’ rights. With regards to tax laws, Mr. Aribi warned that the legal framework is unfair and excessively and burdensome for citizens. He questioned whether Parliament is monitoring such laws appropriately, given that the legislature always consults the tax administration concerning any legal changes.
Mr. Aribi noted that in 1993, the President of the Republic announced the drafting of a law protecting the rights of taxpayers. The law was only issued in 1998 and implemented in 2002, indicating the failure to protect citizens’ rights. In 2010, a constitutional body called the Tax Mediators Office was established to protect taxpayers’ interests. However, as of 2017, this institution had still not begun its work, as it has not been given the necessary resources.
As for the 2018 Finance Bill, Mr. Aribi highlighted Article 31, which gives authorities the power to impose fines without informing the individual concerned. He also highlighted Article 59 of the Bill, which stipulates that the President of the Court must inform the tax administration in writing in order to lift seizure warrants by customs authorities, which means that the tax administration has control over all institutions. He also noted the dangers of giving the tax administration the right to demand that industrial companies and suppliers provide information on the status of their customers, turning them into informants for the tax administration. In conclusion, Mr. Aribi argued for establishing three guiding principles for fiscal justice-equity, impartiality and voluntary acceptance of taxation. On the other hand, he argued that fiscal injustice is characterized by three elements; dissatisfaction on the part of the taxpayer, ineffective processes for resolving disputes and the use of oppressive measures to collect taxes.


The final speaker, Mr. Ahmed Bouzguenda, began by arguing that the Finance Bill cannot be understood properly until it is implemented. With regard to the current growth rate, he argued that we should be speaking of 4% or 5% rather than 1% or 2%. Thus, we should focus on revenues, the capacity to cover expenditures and the need to review economic reforms. He also pointed to the importance of reforming the tax system, as 4,000 taxpayers currently declare less than 10% of their taxable revenues.
Mr. Bouzguenda called for streamlining procedures in the Finance Bill as follows. First, reviewing the levels of social contributions. The increase in these contributions will be borne mainly by companies and individuals, and companies will also bear the cost of social security for their workers. Second, the need to lower wages. Third, improving the quality of public services through enhancing decentralization and supporting private and public investment. Fourth, the need to improve the growth rate and not adopt unrealistic assumptions such as setting an expected growth rate of 2.5% when only 1.2% growth was achieved in 2016 as well as 2017. Fifth, reviewing the value of the Tunisian dinar, whose decline has led to a deficit in the balance of payments. Sixth, addressing the shortage of energy supplies and reviewing mechanisms for funding research in the energy sector and logistical methods used in local production. Seventh, encouraging and stimulating export-based companies, which is the only way to revive the economy, through investment, customs, taxation and fiscal privileges.
During the question and answer session, Mr. Mohamed Ali Ounifi (Director of a private company) called on the Government to define its economic model and rationalize the money supply in addition to supporting the engines of economic growth.
Mr. Mohamed Saleh Ayari (a tax adviser) asked about the Government’s estimates regarding the value of the dinar against the dollar in 2018. Mr. Ayari argued that the estimated system is the weakest link in the Tunisian tax system, which promotes unfair taxation. Mr. Ayari also highlighted the planned reduction in tax incentives for large real estate projects.
Mr. Chokri Ben Issa, a researcher in tax law, stressed that the economic situation is due to the absence of creativity and innovation, which has led to a sterile economic environment and unnecessarily complicated procedures that crush individual initiative and destroy ordinary people’s purchasing power. He highlighted that the inflation rate has reached 9.4% while the growth rate stands at 3%. Mr. Ben Issa pointed to the role of the International Monetary Fund in putting pressure on the state budget through an interventionist policy aimed at increasing employment at the expense of inflation, which led to a rise of three billion dinars in the trade balance deficit, higher levels of public debt and a rise in the inter-bank interest rate to 5%.


The speakers had the opportunity to respond to the audience’s questions. Mr. Bouzganda stressed that the International Monetary Fund and all international institutions are economic partners, so it is wrong to demonize them. As for wages, he argued that the state is required to increase wages since it pledged to do so, in order to maintain its credibility.
Mr. Tawfiq Aribi stated that the statistic given – that 400,000 companies do not pay their taxes – is exaggerated since 64% of them do not submit their tax declarations within the deadlines set by the tax administration. Second, he pointed to automatic cash registers as a means of dealing with tax evasion, sincemost suppliers do not use an invoicing system, which makes it very difficult to calculate tax. Third, the forfeit regime (flat-rate tax system) is a magic tool that has served to reduce tax evasion, providing the state with higher revenues but parliament should not use this mechanism excessively.
Fourth, in the case of tax reforms, a selective policy has been adopted based on giving tax agentsgreater powers and privileges. Finally, Mr. Aribi called on the Government to give the National Taxation Council the logistical and material resources it needs to carry out its tasks.
Mr. Elias Fakhfakh also emphasized that reform of the tax administration is the key to fighting corruption. He pointed out that most people in developed countries pay taxes out of fear of punishment, although it is equally important to spread civic awareness of why it is crucial to pay taxes.
Mr. Tawfiq Rajhi noted that the Government is not showing enough commitment to incorporating different views on economic reforms and the 2018 Finance Bill. He set out a number of points. First, there is a serious need to ensure a balanced budget and reduce the public debt ratio. The Government had the choice either to keep the same ratios and indicators whileraising the level of debtor reviewing indicators and reducing the debt ratio by two billion dinars. Given its commitment, the Government chose to reduce public debt and opted for the national interest. The Finance Bill achieves a balanced budget and curbs indebtedness to less than 10 billion dinars.
Second, Mr. Rajhi argued that the IMF does not dictate or impose policies on Tunisia and it is not right to demonize it. Third, the issuance of a complementary budget law as a result of the change in the oil price is normal and is accepted practice in all developed economies. Fourth, the Government needed the growth rate in 2017 to be 1% higher in order to enable it to finance the 2018 budget. To address this shortfall, it resorted to increasing value added tax rather than cutting social welfare. It also agreed on reforms to the social welfare funds (the National Social Security Fund and National Pension Fund). Fifth, the need to reform the public service and implement the voluntary departure scheme.
Sixth, Mr. Rajhi stressed that while the large number of reforms had led to their being delayed, what is important is that reform of the tax administration is central to tackling corruption. Seventh, the need to reform public investments. Eighth, the need to use foreign currency derived from the agricultural, economic and tourism sectors to stop the slide of the dinar. Finally, Mr. Rajhi argued that it was time to change the exchange rate system in Tunisia, which really doesrequire a reduction in inflation.