Samir Hadj Ali, Chartered Accountant and Managing Partner, Mazars, on Algeria’s voluntary tax compliance programme: Viewpoint

Many stakeholders have viewed the Voluntary Tax Compliance Programme (Programme de Conformité Fiscale Volontaire, CFV), which has been set up under the provisions of the Supplementary Finance Law 2015, as a tax amnesty. However, these are different matters that should not be conflated. Article 43 of the Supplementary Finance Law allows any person, regardless of their tax status, to deposit funds that are exempt from taxation with the banks, following the payment of a fixed-rate tax of 7%. The funds must have a legitimate origin and not bear any relation to acts prohibited by criminal law, such as money laundering or terrorism.

The programme is meant to be closed by December 31, 2016 for funds not subject to taxation on a nominative basis. While this programme is structured to provide a set of attractive incentives, there are also punishments in place for those who do not subscribe to this operation. For the moment, however, there is insufficient information to assess the likelihood of success for the target term.

While the CFV programme is only intended as a tax amnesty lever, it may constitute a first step towards a full tax amnesty. Tax amnesty profiles vary globally and are subject to objectives that are specific to each country’s economy. In Algeria, the main aim is to pool the funds of the informal economy and channel them through the banking sector with a fixed-rate tax withheld at source by banks. In theory, both the taxable population and the mass of taxable income should increase as a result, provided that the related capital continues to pass through fiscally transparent channels.

Success can only be reached if two objectives are met. Firstly, all stakeholders should have a good understanding of the objectives and the benefits of the programme. Further to this, the stakeholders concerned should be able to make a clear distinction between the CFV programme and a tax amnesty. However, it can be difficult to maintain a clear distinction between the CFV programme and a tax amnesty for a range of reasons.

The implementation process already includes incentives such as allowing the purchase of goods in the equivalent cash amount deposited with the bank. Moreover, it means that any deposit lower than AD10m (€92,000) will remain outside the scope of the CFV programme. At the same time, the origins of the funds will only be relevant insofar as they relate to criminal law, rather than the provisions that are to do with fraud. This can make the process appear closer to an amnesty.

On the other hand, the programme does not represent either a total amnesty or an alternative to abandoning the prosecution of fraudulent practices. Indeed, the programme has origins in Algeria’s compliance with the guidelines laid down by the Financial Action Task Force (FATF). The FATF is encouraging the implementation of this kind of programme, which has been defined as any mechanism designed to facilitate the regularisation of taxpayers in respect of funds or other assets which had not previously been declared, or for which statement had been made incorrectly.

Therefore, the implementation of a programme of voluntary tax compliance is not a coincidence, as it is closely linked to the FATF’s recommendations for Algeria. For the moment, the deadline of December 31, 2016 will leave the taxable persons concerned in a standby position, while they assess the risk associated with tax evasion compared to the cost of abandoning the informal economy.

Ultimately these people will decide whether or not to take the path to the banks. Eligible people may not yet have realised that, in joining the formal economy, they will give Algeria a better image in an environment where the rankings of international institutions such as the FATF have great influence.