Morocco’s 2020 budget bill is a reflection of a philosophy that puts the responsibility of structuring the financing for all the state’s affairs in the hands of a centralized government.
“Never let a good crisis go to waste.” Although former United Kingdom Prime Minister Winston Churchill said this expression in a specific historical context, the underlying message conveyed back then still applies in these difficult times.
Crises are unique opportunities to question the existing paradigms and to temper dogmatic beliefs. As a matter of fact, most people cannot consider drastic changes unless they are put in harsh conditions or faced with dramatic events.
The circumstances that drove the Moroccan government to introduce the exemption of the state’s assets from seizure even when the creditor is the beneficiary of a court’s final decision — under Article 9 of the 2020 budget bill — are by far nowhere comparable to the COVID-19 pandemic’s impacts.
The global economic shutdown forced entire industries to close their doors and put “on hold” binding contracts with their entire workforce. From tourism to airlines and manufacturing to services, rare are the businesses that are exempt from this setback.
The “stay home” orders, issued throughout the world, impacted Morocco’s exports and had substantial impacts on Moroccan businesses’ treasuries. This situation does not come without an appalling crash on the state tax revenues and reserves both in local and foreign currencies.
The Moroccan House of Representatives’ vote for the 2020 budget bill was a quite difficult legislative act. With some claiming that it is the responsibility of the executive to reorganize its internal services and priorities in a way to honor its engagements, others were pinpointing the difficult combination of assuring the state’s main duties and prerogatives while continuing government spending on infrastructure, as it stands for one the economy’s main locomotives.
It was, without doubt, a bitter pill to swallow for hundreds of SMEs and large corporations whose main business focus is on applying for and executing public tenders in several industrial fields.
The budget bill’s main contributions
Morocco’s 2020 budget bill brought several attention-grabbing contributions. Yet, the current budget bill construction is merely a reflection of a certain philosophy that puts in the hands of a centralized government the responsibility of structuring the financing for all the state’s affairs.
Hence, in rapidly changing times, the existing prerogatives’ attribution to a centralized entity may lack the needed flexibility to account for speedy adjustments when faced with non-accounted for risks. Can “advanced regionalization” bring about the much-anticipated “agility” in budget rectification when the conjuncture imposes it? The existing crisis advocates for a more responsive structure when it comes to financing the state’s affairs and investments.
From the fiscal perspective, some of Morocco’s long-awaited reforms were brought to life with the 2020 budget bill. As a matter of fact, new fiscal provisions associated with corporate, income, and value-added tax bases were introduced along with others related to tax on insurance contracts and registration stamp duties.
Other provisions aimed to clarify certain fiscal procedures; in particular, those linked to fiscal audit.
Finally, derogations related to a voluntary adjustment of the taxpayer’s tax situation made headlines. They are the first of their kind and an attempt from the executive to open up a new chapter in the taxpayer-fiscal administration relationship.
On the other hand, Morocco’s 2020 budget bill singled out a couple of measures designed to encourage unregistered businesses that had underground activities with unreported revenues to register and be exempt from paying any tax contributions related to previously undeclared revenues.
From the perspective of the construction of the legal and fiscal framework related to the participative finance and Takaful insurance, the 2020 budget bill integrated the long-awaited taxation of the Takaful insurance and re-insurance companies. The applicable rate was aligned with conventional insurance firms (37%).
Still, the Takaful funds did not benefit from any incentive. The tax rate held was the same one applicable for credit institutions and conventional insurance companies. As a new legal entity in the Moroccan insurance landscape, the legal arsenal could have been more lenient with a lower tax rate as it has been — and still is the case — with the OPCM investment funds.
The value-added tax applicable to “Istisna” and “Salama” contracts was aligned with the one applicable for the rest of the conventional financing products, while the tax base has been clarified as the margin made by the participative bank. The list of inducements was extended to real estate social housing developers when acquiring the land with “Mourabaha” contracts. Despite exempting them from paying the registration fees, participative finance professionals highlighted the insufficiency of these incentives set for this new banking industry.
A need for an agile organization
It is no secret for biologists that agile creatures have more chances to be saved from extinction. It may seem like it is quite a stretch to extend this principle beyond its supposed terrain of applicability.
Yet, recent events with the COVID-19 pandemic shed light on the success of “decentralized decision-making processes” applicable in countries like Germany in the fight against the propagation of the infection. Local authorities made rapid, efficient, and just-in-time responses to new developments. Thanks to their proximity to the unfolding events, local officials were in a better position to quickly appreciate the timing and the nature of the policies to be taken.
No one argues the need for an urgent amendment of Morocco’s 2020 budget bill. Early signs appeared when the finance secretary of state asked the House of Representatives for authorization to exceed the current limit of borrowing labeled in foreign currency. The expected stress on the government budget due to the morose state of the economy, with all its impacts on the collected tax, makes such an amendment inevitable.
While the budget bill has the legitimacy of incorporating the state fiscal policies, incentives, etc., it is arguable to put the burden of all the state budget structuring on the executive with its centralized decision-making process. Such orientation makes any amendment of the budget bill go through fastidious administrative and legislative processes and political debates with the associated lack of reactivity.
From the historical perspective, it was customary to congregate in the budget bill all financing needs related to the state functioning, investments, and debt payment. While this concentration made sense right after independence, after several decades, this load needs to be lightened in a way to open up the doors — with “advanced regionalization” — for prerogatives’ transfer to regions.
While the legal framework related to regions (Act 111-14) clarified the new governance model, its provisions might need to be more explicit when it comes to regions’ debts issuing, financing of local infrastructure, advancing collateral to financial institutions, receiving tax-deductible grants, and issuing incentives for specific industries. The exercise of such prerogatives will bring along more reactivity when faced with unexpected events and better resource allocations for the specific needs of each region.
It has been stated, over the years, that regions may lack the necessary human resources for such new responsibilities. This argument may not stand the test as local officials are now better educated and equipped with the required experience, usually from the private sector, to fulfill this role and live up to the expectations.
Ali Ait Belhoucine has an engineering background with graduate studies in economics and finance.
He worked several years in the investment banking industry. His current interests, as a jurist, fall within the areas of commercial and fiscal law.