Samir Hadj Ali, Country Managing Partner, Mazars, on integrating the tax system into the larger regulatory regime

Among the laws and regulations that have an impact on investment, tax laws and amendments introduced through finance acts are the easiest way to implement policies and meet goals that have been set by the government. By making adjustments to tax policies, these measures can be effective relatively quickly. This is why an ongoing re-structuring of the tax system is among the best and the most efficient ways for a country to boost its development.

With a stable tax regime that features some of the lowest rates in the region, Algeria is an attractive destination when considering net profit as the measurement of an investment’s return. However, having a stable tax system is not sufficient by itself if the other components of the regulatory environment are not conducive to foreign investment.

The laws and regulations governing investments in Algeria are generally in line with the global standards that are understood by most stakeholders. Despite the constraints that are placed on foreign investors, Algeria is still an attractive investment destination, as the returns, at least in relative terms, are robust. The challenge is to align the interests of foreign investors with those of the country such that both parties’ long-term goals can be realised. In Algeria, the state’s ambitions are clear, including plans to strengthen infrastructure. The government would also like to see growth driven by stable businesses that can provide employment opportunities. The dilemma exists in matching policy goals with the aims and expectations of businesses.

Following the passage of the Complementary Finance Act of 2009, investors have adopted the principle of reinvesting profits in proportion to the incentives they have enjoyed, such as tax holidays and other exemptions, and they take as a given that a firm’s trading activities are not eligible for the repatriation of profits. However, it has taken some time for investors to get to this point, as it has not been easy for them to master the new regulations.

A tax system always creates some burdens when it comes to adapting it to a given industry or to a given size of enterprise. For instance, the turnover tax has not been welcomed by some industrialists, who claim that this tax expense is too high, especially for businesses with low margins. Another example is the combined apprenticeship and professional training taxes, which are not deductible.

On the other hand, provinces and districts for which the turnover tax is an important source of financing or the national fund in charge of financing a professional training programme, for which the apprenticeship and training taxes were designed to finance, have a key role to play in the development of the economy. These two examples show that, while stakeholders can have an adverse perception of certain taxes, the revenues that are generated by such taxes can benefit companies.

Simple and equitable, the Algerian tax system provides an efficiency that may not be recognised by all entrepreneurs, but it cannot be denied that it has contributed to the promotion of economic growth.

In the context of the manufacturing and construction sectors, for example, the corporate tax rate is lower than the one applicable in trading or in services, while exports are fully exempt. However, these measures have yet to have a major impact, such as reversing the reliance on imported goods or reducing the dependence on hydrocarbons exports.

Incentives granted to small and medium-sized enterprises may have to be enhanced considering that this is a category of business that is particularly sensitive to changes in laws. These smaller firms may also help the economy’s development by producing alternatives to some imported goods.

In the long run, it would not be in vain if the stakeholders from each side – policymakers and businesspeople – were to consider how they can realise Algeria’s goals with appropriate measures that are both affordable and achievable for entrepreneurs.