THE ARAB MONETARY FUND PUBLISHES A STUDY ENTITLED: "FISCAL POLICY OPTIONS TO SUPPORT MICRO, SMALL AND MEDIUM ENTERPRISES"

by **claud39** Thu May 13, 2021 8:41 pm

THE ARAB MONETARY FUND PUBLISHES A STUDY ENTITLED: "FISCAL POLICY OPTIONS TO SUPPORT MICRO, SMALL AND MEDIUM ENTERPRISES"

2021-05-10

A number of Arab countries have been keen to design tax policy options in a way that supports micro, small and medium enterprises and works to simplify and reduce the cost of tax compliance.

Within the framework of the efforts made by the Arab Monetary Fund in terms of research activities to support decision-makers in Arab countries on priority issues, the fund prepared a study entitled "Fiscal Policy Options to Support Micro, Small and Medium Enterprises". The study focused on shedding light on the tax frameworks for micro, small and medium enterprises, and indicated the multiple goals of countries in adopting these frameworks. Some of them are related to the state’s desire to increase the levels of tax revenue in light of the great relative importance of the number of these institutions and their contribution to GDP and employment, and some are related to the state’s keenness to formalize economic transactions and integrate the activities of the informal sector into the formal system .

The study indicated divergent views regarding the feasibility of having a separate tax system for micro, small and medium enterprises. While some see this system as one of the pillars of the favorable environment for such projects, others argue that this system is not justified in terms of efficiency in the distribution of economic resources, whether in light of the limited evidence indicating the role of these incentive tax systems in increasing the levels of participation. For these projects, or in light of the considerations of the limited financial and human resources of the tax authorities, which requires them to allocate the most important aspect of these resources to monitor the levels of compliance and tax payment of large financiers, compared to their counterparts in the micro, small and medium enterprises that require resources that are difficult to provide in light of the number The great financiers of this sector .

The study also showed that despite the divergence of opinions regarding the feasibility of having tax systems for micro, small and medium enterprises, the high cost of these institutions' compliance with tax systems imposes on the tax authorities in general the need to pay attention in return to adopting all measures that would simplify and reduce The cost of these projects' tax compliance .

The study also examined the experiences of some Arab countries with regard to tax frameworks for micro, small and medium enterprises, including Jordan, the UAE, Bahrain, Saudi Arabia, Kuwait, Egypt, and Morocco, and indicated the keenness of the tax authorities in these countries to design tax policy options to support These institutions by imposing low tax rates on these companies, simplifying the procedures for their compliance with these tax systems, and granting them many tax exemptions, in addition to the authorities' keenness to carry out a number of activities aimed at increasing levels of awareness and tax compliance .

The experiences of Arab countries in this context are still somewhat recent compared to international experiences, which is attributed to a number of reasons, including the recent application of tax frameworks in some Arab countries, especially the oil ones (the UAE, Bahrain, Saudi Arabia, and Kuwait), or to the recent existence of Laws that regulate the work of the MSME sector in other Arab countries, such as Egypt, for example.

Small and medium enterprises in the aforementioned countries are mainly subject to value-added tax, while in addition they are subject to the tax on corporate income in Saudi Arabia, and to the tax on personal and corporate income in Jordan and Egypt, and in Morocco they are subject to three types of taxes, but according to standards that target Reducing the tax burden on these institutions. It is evident from the experiences of the aforementioned countries that none of the countries included in the study resorted to applying a unified tax system on these institutions, which combines all types of taxes applied in the country into one low tax rate.

The study indicated high levels of tax compliance for sector institutions in a number of Arab countries such as Bahrain and Jordan, but in general there is still a need for many Arab countries to increase the levels of simplification and efficiency of tax systems, especially through digital transformation to allow increased compliance rates. Only for micro, small and medium enterprises, but also for large financiers .

The study also clarified, according to the available statistics, to the importance of raising the level of the contribution of micro, small and medium enterprises to total tax revenues, as this percentage does not exceed 35 percent of total revenues in the countries included in the study, which highlights the importance of reviewing tax policies. Towards these institutions to increase the levels of compliance and tax collection, as well as to overcome all obstacles they face in this framework. Likewise, the importance of adopting national policies aimed at integrating institutions operating in the informal sector into the formal system with the aim of improving levels of productivity, competitiveness and tax compliance .

In light of the above, the study concluded some recommendations at the level of Arab countries, including :

Focusing tax policy on determining the appropriate tax rate to be imposed on this sector, and developing a simplified and rapid system for collecting these taxes in a timely manner, in order to prevent the growth of the shadow economy .
The need to design the tax policy options imposed on the sector commensurate with the age and size of these institutions. In the early stages of its life, it requires capital to start a business and takes a while to achieve profits that can be taxed. Consequently, it is necessary to exempt these enterprises from taxes at the beginning of their establishment, and then as the businesses of these institutions grow, they are subject to taxes in line with the size of their businesses and the number of their employees .
The required alignment and balance between integrating the sector's institutions into the tax system, and between the purposes of promoting economic growth, productivity and competitiveness. For example, tax incentives can be adopted to encourage these institutions to direct more of their profits for the purposes of reinvestment or research, development, qualification, and employment activities .
Promote the adoption of a stable, clear, transparent and predictable regulatory environment to assist sector enterprises with tax compliance .
Studying the possibility of resorting to unified tax systems (Combined Tax System) by adopting simplified tax systems based on the number of businesses, within which a number of taxes imposed on these institutions (corporate income tax, personal income tax, social security contributions) are combined into the pool. One tax, which helps reduce the cost of tax collection, that is, not incurring very high administrative costs for collecting small amounts of taxes from thousands or millions of very small businesses .
Integration between commercial registration and tax systems helps reduce information and compliance costs .
Adopting several incentives to increase the voluntary compliance levels with the tax systems of the sector institutions by reducing the periodicity of compliance to annual or semi-annual, and allowing these institutions to keep simple financial books and install tax dues .
Adopting programs to build tax capacity in micro, small and medium enterprises to enable these enterprises to meet the required tax requirements, including the maintenance of regular financial books and specific compliance procedures .
Taking advantage of the tremendous opportunities provided by digital transformation in tax administration to increase compliance levels. Electronic filing of tax returns would speed up procedures and reduce compliance costs. It is also possible to rely on periodic reminders sent via mobile phone to pay taxes and accelerate tax payment and refund procedures to increase the tax collection from sector institutions .
Focusing on removing all challenges that prevent the integration of sector institutions into the tax system by increasing the levels of awareness of financiers from this category of the benefits that accrue to them as a result of joining the official system, in terms of providing social security services to workers and submitting them to a simplified tax system at an affordable rate .

The full version of the study is available at the link

https://www.amf.org.ae/ar/study/tax-policy-options-support-msmes

https://www.amf.org.ae/ar/content/%D8%B5%D9%86%D8%AF%D9%88%D9%82-%D8%A7%D9%84%D9%86%D9%82%D8%AF-%D8%A7%D9%84%D8%B9%D8%B1%D8%A8%D9%8A-%D9%8A%D9%8F%D8%B5%D8%AF%D8%B1-%D8%AF%D8%B1%D8%A7%D8%B3%D8%A9-%D8%A8%D8%B9%D9%86%D9%88%D8%A7%D9%86-%D8%AE%D9%8A%D8%A7%D8%B1%D8%A7%D8%AA-%D8%A7%D9%84%D8%B3%D9%8A%D8%A7%D8%B3%D8%A7%D8%AA-%D8%A7%D9%84%D8%B6%D8%B1%D9%8A%D8%A8%D9%8A%D8%A9-%D9%84%D8%AF%D8%B9%D9%85-%D8%A7%D9%84%D9%85%D8%A4%D8%B3%D8%B3%D8%A7%D8%AA-%D9%85%D8%AA%D9%86%D8%A7%D9%87%D9%8A%D8%A9-%D8%A7%D9%84%D8%B5%D8%BA%D8%B1