Rules on Paper, Rules in Practice: Enforcing Laws and Policies in the Middle East and North Africa by Al-Dahdah Edouard Cristina Corduneanu-Huci Gael Raballand Ernest Sergenti Myriam Ababsa

Author:Al-Dahdah, Edouard, Cristina Corduneanu-Huci, Gael Raballand, Ernest Sergenti, Myriam Ababsa
Language: eng
Format: epub

Enforcement Variation across Categories of Taxpayers

Auditing is one of the most contentious components of tax implementation. Because it is the most visible interaction between the tax authority and taxpayers, perceptions of the fairness and probity of audits influence judgments of the rule of law in everyday life. Political economic incentives of enforcement, shaped by exogenous capacity constraints, determine targeting strategies.

In Morocco, a heavy reliance on phosphate revenues in the late 1970s led to weak tax enforcement capacity. Prior to the 1986 reforms, the tax administration performed no more than 10 audits a year, when about 200,000 firms were subject to the corporate profit tax, and reached a maximum of 300 investigations for 900,000 households. Furthermore, the collection of income taxes routinely occurred with 15-month delays, causing a loss of up to 5 percent of real tax revenue amid escalating inflation. The administration used multiple identifiers for each taxpayer and did not systematically check consistency.

The underreporting of taxes occurred on a massive scale, with both firms and self-employed professionals engaging in large-scale tax avoidance (CDC 2011). But over time, the administration invested heavily in capacity even while keeping the number of tax inspectors relatively constant, and auditing efficiency improved during the last decade (Figure 3.10 presents the development of auditing capacity).

Despite these gains, auditing decisions and processes are not as transparent as they could be. The 2011 CDC report found that the DGI lacked clear audit strategies and formal ethical criteria for assessing the behavior of tax inspectors. For instance, the accumulation of corporate tax arrears over several consecutive years does not usually trigger the decision to audit. “In fact, all the audit proposals come from tax inspectors based on their individual opinions, which can be subjective” (CDC 2011, 36). The poor management of audit records and the lack of coordination between the DGI and the regional units undermine the auditing process further. Moreover, the number of audits decreased significantly between 2012 and 2013 (Al-Andaloussi 2015).

Recently, the DGI began using specialized software that will eventually enable it to adopt more coherent auditing strategies based on a risk assessment algorithm that categorizes taxpayers according to previous tax compliance.41 Companies with a record of tax compliance will be rewarded with expedited reimbursements. As of early 2013, the DGI had already received several demands from large firms.42

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