Fiscal reform: point of view

Dr.Jamal Kanbarieh

The fiscal reform aspires to increase receipts by stimulating economic activities rather than augmenting rates.

Improving investment environment in Syria stipulates political stability, social security, and adequate fiscal system sufficiently obvious and efficient to diminish tax avoidance and increase fiscal receipts. There is a general agreement on the importance and the urgency of fiscal reform.

The strategies of fiscal reform should be in harmony with industrial sector reform, financial markets and new customs laws. We have to consider the open markets challenges (different treaties with neighboring countries).

Author suggests the separation between the state budget and the public sector budgets. He pleads to let public enterprises keep liquidity surplus, and to leave the public sector supervision to the industrial ministry. Management should be separated from ownership. Tax rates must be reduced and the system had to be simplified.

The lecturer emphasizes that taxes do not mean receipts only. They contribute actively to achieve the objectives of the economic policy. Therefor, he analyses the results of plans adopted by the ministry of finance. These plans focus on the tradeoff between taxes decreased on income resources (in order to encourage production and investment) and taxes on income expenses. The author highlights some negative aspects in the current system and he forwards some ideas:

¨ Enterprise’s revenue Tax represented 20% of the 2000 budget receipts. He expects that this percentage will increase because of the expiry of tax exempt period given within Law N10. The problem resides in the high rate applied on this category. The rate have been lowered from 92.4% on the portion of revenue bigger than 700000SP to 63% on the portion of revenue bigger than one million SP. But it remains high particularly when adding additional taxes. This rate can not be compared to the Lebanese rate (10% on firm’s profit that exceeds 1.25 million SP). This may explain the tax avoidance and the investment regression in Syria.

Consequently, rates and fiscal portions and exemptions must be reviewed.

¨ Wages and salaries taxes are fixed since 1949. An additional tax of 15% has been added (military effort). Minimum portion of salary exempted from taxes should be reviewed. Exemption concerns the minimum standard of living. That means, 5000 SP should be exempted instead of 100 applied for more than five decades. Exemption rates and portions ad hoc are to be reexamined periodically (depending on inflation).

¨ Most of the circumstances are changed in Syrian industry and foreign commerce. Now, we witness a transition period to an economy more opened on Arabian and neighboring markets. Raw materials are taxed up to 47% of their value to customs (in addition to other fees and taxes due to several national parties as foreign trade establishments…). Whereas, Finished goods are imported and tax exempted. This means importing is cheaper than manufacturing locally (examples: air-conditioners, margarine…). This phenomenon provoked the bankruptcy of manufactories. This may explain the importance of customs tariffs restructuring.

¨ Syria is the unique country among its neighbors to apply the machine tax majored by additional taxes. It concerns manual or motive power machines. This tax induces a double taxation.

¨ Stock companies (shareholders) in Syria are taxed on the base of 25% if they open their capital to the public subscription. But shareholders seek to gather congruent groups and refuse unknown shareholders in equities. The author suggests exempting these firms from the condition of public subscription.

¨ Legacy taxes treatment is different between foreigners and Syrians. Taxes on foreigner’s legacies are limited to properties in Syria. But concerning Syrians, taxes are applied on their legacies in Syria and abroad! This helps to understand why Syrians hesitate when investing in Syria.