Syrian tax system and its reform orientations

Dr. Mohamad JLAILATI

Tax reform aims to realize equity, encourage investment and motivate exports. The national income tax capacity in Syria seems to be normal (16.21% of GDP).

Giving current circumstances, any increase in tax will affect the subsistence level for limited income people and may leave bad traces on national economy.

Syrian tax system lacks the underpinning of a tax system characterized by equity, relevance, transparency etc. Among budget purposes, the financial one is the only goal achieved on the expense of other social and economic goals.

Compared with those in force in other countries, tax portions and rates, issued in 1991 are the highest in Syria, and do not match any other country. In addition to the tax evasion, this leads also to depress investment. Companies profits are eroded by tax and bank interests burden, in addition to other investment obstacles.

Wages tax portions and rates lack totally equity. They push substantially the income below the subsistence level. It is hard to avoid this tax. Inheritance taxes are very high and exemptions are very low, which leads to inequity and push heirs to avoid taxes. So, they should be abolished as in Egypt, or amended by increasing exemption levels. Financial stamp fee imposed on companies (1% of capital) is, currently, very high; and this is a main reason, which does not promote the establishment of stockholding companies. The lecturer suggests abolishing this fee at least on this category of firms.

Price divergence presents another kind of receipts. But, these proceeds can not be treated as taxes. They are illegal because issued by ministerial decisions (not by laws).

Customs taxes are a very important source and they need to be evolved and amended to comply with Arab free trade zone and with GATT. As in Egypt, the complementary consumption fee has to be replaced by Sales tax.

In the period from 1990 through 1997, tax growth rate has been greater than GDP growth rate. In opulence era, this may represent a good indicator. But, during recession, we must decrease taxes in order to obtain a bigger GDP growth rate. So, the increasing in tax receipts after 1994 contributed to the recession.

Income taxes on commercial, non-commercial and industrial profits had annually an average growth rate of 26%. This may be explained by the change in dealing with Syrian Oil Company profits. This new treatment and the fluctuations in oil prices veiled the reality of this tax growth rate.

Consequently, tax legislation reform must be carried out with respect to combating the administrative corruption and the misleading of public funds, decreasing tax rates, adopting social and personal tax exemption, restructuring wages and salaries, replacing indirect consumption taxes by sales tax system (this requires a radical tax reform as a part of a comprehensive economic reform), creating an internal control system, providing a development information system, adopting Tax Registration Card, penalizing severely tax evasion, abandoning economic information secrecy and adopting transparency, clarifying budget resources and uses etc. The lecturer proposes to issue legislation on banking secrecy and to create a financial market.

Commentary of Dr. A. DALILA:

Syria now is the most country suffering from tax leakage (particularly, from the most wealthy) growing far away from financial authorities. Syria needs a healthy environment to attract investments. That means good services and high taxes are more efficient than low taxes and bad service. Law application is merely one tax system principle among others. Syrian financial and tax system infringes the law because of repetitive budget announcement delay, continuous difference between actual and estimated figures (surplus in tax receipts is 20-30%), violation of budget principles (unity and the universality). In Syria, no one knows the real budget figures or balances. All the factors mentioned above are responsible for leading Syrian economy to sterility. They do not match at all with Syrian potential capacities.