Tunisia uses digital payments and reduced informality to increase tax revenue

As Tunisia attempts to balance its budget and free enough financial resources for investment programmes, dealing with the rise of business informality and tax evasion has become of paramount importance. Although exact figures on the issue are difficult to quantify, studies point to an increase in the volume of informal activity following the 2011 uprising. Government officials have estimated that tax evasion in 2018 amounted to TD25bn ($8.7bn). Moreover, the Tunisian Institute for Strategic Studies estimated in February 2019 that as much as 41.5% of the local workforce operates in informal activities.

The issue is more prevalent in some of the country’s interior regions, where investment is lower than in the coastal cities. In the Sidi Bouzid and Kairouan governorates, for instance, the percentage of workers in the informal sector stood at 54% and 53.4%, respectively, in early 2019. Tax collection and combating informality are vital to budgetary sustainability, as public debt was roughly 72% of GDP in 2018, up from 70.3% in 2017, according to a report by the IMF.

Improving Tax Collection 

Macroeconomic turbulence has made life increasingly difficult for both the government and a growing number of ordinary Tunisians. A large part of this has been the devaluation of the dinar in recent years per IMF recommendations, billed as a way to counteract trade imbalances. Speaking at the 2019 Tax Forum in April 2019, Néji Baccouche, a professor of public law at the University of Sfax, said Tunisia has the highest tax burden out of all countries on the African continent, at 33%. Yet a major challenge for the government is how to expand the share of the population that pays taxes in order to make the system more fair and ultimately boost income. “We have seen a large increase in private salary taxation, but these measures have targeted a specific section of the population,” Rafik Mzah, chief legal officer at capital market group AfricInvest, told OBG. “As this is the easiest way to increase collection, the state should work to bring more companies into the formal economy.”

Some measures are already helping the authorities rationalise tax collection. In the interest of fairness, the 2019 budget law did away with the preferential tax regime that was granted to exporting companies. Firms established in 2019 will comply with the same regime as onshore companies, and export businesses created prior to December 31, 2018 will see their preferences removed in 2021. Another measure in the budget law is the increase of value-added tax (VAT) from 13% to 19% on services provided by liberal professions, aligning this category with the standard VAT rate on most other goods and services. These measures build on improvements Tunisia made in 2018, specifically, the collection of tax arrears.

Tunisian authorities are also continuing their work to improve tax administration and collection efforts by integrating the collection, audit and recovery of taxes under a unified structure. Tax collection is projected to expand from TD18.5bn ($6.4bn) in 2015 to TD27.3bn ($9.5bn) in 2019, according to the IMF.

Reining in Informality 

While increased tax revenue is expected to be achieved in part through better collection methods, a big return is also forecast to come from the recent tax increases on middle-class Tunisians. Having a better distributed tax burden, however, will require bringing informal business operations into the system. “The state can establish a small rate for the informal businesses that are currently out of the system. This is an actionable objective and would allow to slowly bring these people into the formal economy,” Mzah told OBG.

Digitalising payments will also help. In March 2018 officials launched a plan to eliminate cash payments in public offices and move towards more easily tracked mobile and online payments. The move is to reduce corruption and tax evasion in interactions between citizens and companies, and the state.