The Interior Ministry did not wait for the framework law on taxation to begin work on reforming local government taxation. A bill instituting new rules in the determination of the tax base, the tax thresholds and the distribution of revenues, has just been adopted by the Government Council. Here are the main changes it brings.
Supported by the Minister of the Interior, the bill was adopted on November 5 by the Council of Government. It will pass to Parliament for a vote to enter into force from January 2021. This is Bill 07.20 which amends and supplements Law 47.06 which entered into force on December 6, 2007, under the El Fassi government.
According to the introductory note of the bill, this text is only a first step in the work of reforming local taxation, “pending the framework law on tax reform which will set the course for the comprehensive reforms of the tax system on the basis of the recommendations of the May 2019 tax meeting ”, indicates the Ministry of the Interior in its presentation note.
Objective of this bill according to the Department of the Interior: to bring more tax fairness and increase the own revenues of local authorities.
The changes it brings broadly focus on four areas:
1- The adequacy of the current provisions of local taxation to the constitutional changes of 2011, to the changes experienced by the General Tax Code since 2008, as well as to the new rules of administrative division of territories that have arisen in the meantime.
2- The review of the tax base which is in line with its enlargement to increase the revenue potential of communities, as well as in the rules for the allocation of revenue collected between communities and the general state budget.
3- Improvement and relaxation of tax collection rules, notably by the introduction of the digital channel both for declarations and for payment.
4- Revision of the scope of tax incentives and exemptions to adapt them to the general tax code and to the new economic context.
Business tax: the rental value, increased every 3 years instead of 5 years
One of the main novelties brought about by this bill, the allocation of business tax revenue.
The current text of the law passed under El Fassi fixed in its article 11 a distribution key which disadvantaged the local authorities where activities subject to this tax, commonly called “the license”, are carried out. Only 80% of the revenue from the license currently feeds the budgets of the communities. 10% goes to the general state budget, the rest goes to the budgets of professional chambers (agriculture, commerce, services, crafts, etc.).
The new distribution key brings the share of local authorities to 87%, and to 11% that going to professional chambers. The general state budget will be content with 2% of all business tax revenue.
A major change that will significantly increase the own revenues of communities. This is precisely one of the main objectives of this first stage in the reform of the legal arsenal of local taxation.
Calculated on the basis of the rental value of the place where the commercial or professional activity is carried out, the professional tax will also undergo changes in its method of calculation. The current law applies a tariff based on a rental value that can be revised every 5 years at a rate of 2%. To broaden the revenue potential of local authorities, the new bill increases the rental value review period to 3 years, while maintaining the automatic rental appreciation rate at 2%.
Tourist tax: Airbnb and Booking accommodations go through checkout
Another novelty also aimed at the same objective of increasing the own revenues of municipalities and other local authorities: the broadening of the base of the tourist tax. Until then, this tax only applies to hotels and tourist accommodation sites. The new bill broadens its application to furnished apartments rented for tourist purposes, in particular through electronic platforms. A provision that targets (but without naming it) the flourishing activity of platforms such as Airbnb and Booking.
These parallel rental activities, known as “other forms of tourist accommodation” in the bill will be charged rates similar to 1 or 2 star hotels, ie 2 to 5 dirhams per person accommodated and per night. 5-star hotels apply a reminder rate to their customers of up to 25 dirhams per night and per person.
In addition to broadening the tax collection base for local authorities, this provision clearly sounds like a necessary adaptation of the tax system to changes in the tourism sector between 2008 and today.
Tax on construction operations: bringing non-regulatory housing into compliance enters the tax field
Other changes targeting the same objective are being introduced in the tax on construction operations. This currently applies to construction and renovation operations. The new bill also adds operations to bring illegal or clandestine constructions into conformity as well as demolition operations.
This tax, which is currently paid only once at the time of obtaining the building permit, will now be due each time the owner of the property requests authorizations for upgrades or changes to the plan initially filed. New taxes which will however only apply to the area affected by the said changes.
All with a minimum collection threshold of 1,000 dirhams. The housing tax can therefore in no way be lower than this threshold, which does not exist, it should be pointed out, in current legislation.
To further increase the tax potential of this tax, the bill modifies the period of exemption for the construction of main residences. The current law grants a grace period of 5 years after the end of construction work. Duration which passes in the new bill to 3 years.
Collection and recovery: debts less than 200 dirhams, abandoned
The bill also makes changes to the level of tax exemptions and incentives.
For the disadvantaged groups with low incomes, the bill decides on the abandonment of any tax claim lower than 200 dirhams. And sets this threshold of 200 dirhams as an event giving rise to the tax. That is to say that any local tax whose value is less than 200 dirhams no longer needs to be subject to a tax notice.
The battery of exemptions is also extended to the various non-profit institutions created since 2007, when the current law was enacted. And also integrates the industrial developments of the country.
Thus, companies active in industrial acceleration zones have been included in the exemption field, but only for the first 15 years of their entry into activity. Ditto for the Africa 50 fund, recently created by the African Development Bank, an establishment which was already on the list of institutions exempt from local taxes.
Tax on undeveloped land: flexibility for real estate developers
If the bill generally tends to increase the revenues of communities, it also tries to relax the taxation applied to certain activities. A trend that is clearly seen in the new provisions concerning real estate development acts, some of whose advantages have been extended.
First example: promoters engaged in the construction of residences, housing estates or university campuses.
Under the current law, these developers were exempt from paying local taxes when they agreed to build campuses of at least 500 rooms. This requirement is lightened in the new bill and increases to only 50 chambers. A provision that can be read as an incentive for projects of cities or university campuses in all regions of the Kingdom.
Another incentive granted to developers: the increase in the grace period on undeveloped land. Under the current law, the exemption on undeveloped land ran for up to 7 years for land over 100 ha after obtaining the subdivision authorization.
The new bill extends this period to 15 years and creates new sections in terms of surface area:
– Between 30 and 100 ha, the exemption lasts for 5 years.
– Between 100 and 250 ha, the duration of the exemption is 7 years.
– Between 250 and 400 ha, the grace period is 10 years.
– This period increases to 15 years from an area of 400 ha.
The current law sets only three installments: 3 years for undeveloped land of less than 30 ha, 5 years for land of 30 to 100 ha and 7 years for areas exceeding 100 ha.
The new bill therefore brings a real relaxation of these taxation rules. And gives real incentives to real estate developers who own undeveloped land.
These incentives don’t end there. In the current law, if the promoter does not complete his project within the exemption period, and this, by officially obtaining a residence permit, he must go to the cashier by retroactively paying the tax for the period during which it was exempt.
The current bill provides a major relaxation here and proposes that the payment of the tax should only take place if the developer does not complete at least 50% of the project.
These provisions can be subject to a double reading: they can be interpreted either as new tax gifts to property developers, or as an adaptation of the fiscal corpus to the reality of the sector which is experiencing a decline in demand, and where many developers do not ‘no longer have the financial capacity to complete projects on land purchased during the real estate bubble.
Presented as a first step to bring some order to local taxation, this bill will be followed, as the Ministry of the Interior indicates in its presentation, by new provisions which will be proposed in a second step to integrate the recommendations of the last tax meeting as well as the results of the work of the special commission on the development model.
Source : Media24
