Strategy of tax and customs reform in Syria

Dr. Mohamad BITAR

This article treats the tax reform and the customs reform.

BITAR considers the tax reform as a part of global economic reform. Currently, Syria is in a transitory period to be introduced in the global economy. This is reflected through foreign direct investment, improvement of investment environment, increasing the role of the private sector, and unifying exchange rates.

Succeeding in the new open economy necessitates tax system reform. This system is compound of normative taxes (direct and indirect). Some taxes are in vigor for since 1949. Profit tax has been decreased and the portions enlarged (law N20 in1991), the legacies taxes have been amended (legislative decree N4 in 1998), export tax on cotton has been abolished (Law N7 in 1999) and investment law has been amended (decree N7 in 2000).

Tax system shows several deficiencies:

Tax receipts approximate 14% of the GDP during last years. Direct taxes represented 61.36% of fiscal revenues in 1999. Taxes on profits were the most important of which 83.71% paid by the public sector. That means the public sector taxes were equivalent to 7.49% of the GDP. Whereas, private sector paid 1.46% (private share in GDP is 61%).

Tax system suffers of structural deficiency. There is no incremental general tax on the sum of incomes. It focuses on individual revenue rather than the household one. It adopts absolute amounts eroding by inflation. Furthermore, it became very expensive to collect these taxes.

This system needs a radical restructuring in order to face tax evasion.

BITAR explains the strategy of the finance ministry to develop the tax system. This strategy supposes that fiscal mission resides in activating the economic development rather than merely collecting taxes.

Ministry of finance aspires through its plans to reduce taxes on resources of income in order to stimulate production and investment. This reduction is counterbalanced by taxes on income uses. This strategy is based on:

Reducing tax rates and enlarging portions.

Orienting taxes to insure the tax harmony with the objectives of the public policy.

Tax diagnosis and substituting normative taxes with taxes on global income and fixing a minimum of exemption.

Reducing taxes on income and production in order to stimulate production, saving and investment. The ministry will reduce customs tax on raw materials to lower production costs and increase the competitiveness.

Exempting syrian exports.

Fighting tax evasion and help in implementing tax equity.

Restructuring fiscal decadence rules…

BITAR thinks that the computerization is essential to improve tax performance. The ministry will adopt the principle of a unique fiscal number. It will sustain training policy and emphasizes the transparency and the accountability.

Concerning tax evasion, the ministry carried out measurements as creating tax investigation departments in which computerization permitted to divulge several cases of tax avoidance.

The ministry forwarded several law projects to improve the performance. These projects concern fighting tax evasion and treating the obscure activities of foreign companies concessionaires…

BITAR thinks that the customs reform must be achieved through customs law (unchanged since 25 years). Currently, a committee is charged to prepare the new law considering laws adopted in neighboring countries. This committee includes the representatives from the ministries of finance, economy and industry, and chambers of industry and commerce and the customs administration.

The ministry of finance strategy treating customs tariffs is based on:

Increasing the number of articles mentioned in Brussels tariffs in order to be congruent with new needs.

Adopting new classification

Abolishing some articles characterized by very small volumes in trade.

This ministry tries to decrease the customs tariffs on raw materials in order to establish the appropriate equilibrium with tariffs on finished goods. It aspires to unify the multiple rates of exchange (currently, Syria has three rates 11.25, 23, 46.5). The ministry aims to simplify the procedures of temporary entry oriented to the re-export. It gathers economic agents relevant to customs in the same area (customs, ports, and laboratories...) in order to attain the single gate (Ports of Latakia and Tartous).