2017 Finance Law: the industry sector takes pride of place

In the absence of a government that should have been formed after the elections of 7 October 2016, and pursuant to the provisions established by the law in such a situation, "a finance law" in small format was enacted by decree of the head of government.
As a consequence, and in the absence of a Dahir enacting, in the wake of the Parliament's vote, a finance law based on the draft prepared by the outgoing team, we are left with a version extracted as it is from the initial project.
The Tax Directorate issued a memorandum dated January 17, 2017 in lieu of the traditional circular on tax measures. But unlike the circular, this memorandum does not address all the contributions on tax matters.
Thus, the provisions related to the extension of the tax benefits granted to companies established in free zones and companies exporting to other operators or businesses are not mentioned. The Parliament has conditioned the implementation of part of the provisions through measures to be enacted by regulation.
Other provisions, however, are applicable as of January 1st, 2017 without conditions other than the justification by any means, of the final export of their products.

Yet this finance law which appears truncated at first glance, actually implies a real tax shift that is beneficial for the Moroccan industry. It responds effectively to the concerns of many industrial sectors which contribute more or less to the strengthening of our economy's export capacity.
To illustrate this, let's review the tax provisions of the Finance Act for 2017.  We will only review those relating to industrial activities.
The first of these provisions relates to the extension of the specific arrangements for the companies established in the Export Free Zones (EFZ) selling their products outside the free zones provided that they justify the final export of such products.
The tax treatment of sales on the subject territory has long been a subject of controversy and tensions between the tax authorities and the operators established in the free zones.
The matter has finally been settled by way of court procedures in favour of the tax authorities and the companies involved have regularised their situation by paying tax at the standard rate.
The economic rationale now prevails over budgetary considerations through an overall coherence approach.

A second series of tax provisions is related to the extension of the "exportation" tax system to certain activities. This is true for sales carried out by companies in favour of firms located in EFZ. Indeed, ultimately these products are intended for export.
The same rule applies to industrial companies under the sale of their products manufactured for companies finally exporting. This provision is conditioned by the definition of the activities concerned by the regulation.

All the reviewed provisions contribute to finally recognise the status of indirect exporter, and benefit from the advantages usually granted to exporting activities.

Finally, the last final tax provision related to industrial companies operating activities that require regulation, will receive a total corporate tax exemption for the first five consecutive years from the date of their operation.  

Thus, the government partially implements the new investment charter.
The world's economic history has demonstrated the leading role of the industry in creating value. When properly led, industrial policies help sustaining growth rates likely to reduce unemployment and strengthen the country's development.

Our economic model, for which many claim a revision, is very fragile given its strong dependence on agriculture and climate hazards.
Knowing that the industrial growth rate was only 1,9% in 2016 and only 2,5% in 2017 and that the growth rate, excluding the agriculture sector, went from 4,7% between 2000 and 2012 to 1,9% between 2013 and 2016, one can only be alarmed and ask for a serious reflection on the future of our economy. Some might argue that new tax exemptions and other reduced rates will widen further tax expenditure estimated at about 35 billion dirhams. In this regard, it would be appropriate to have a serious and finely documented debate. For it seems that there is a confusion between tax expenditure and fiscal investment.

Indeed, it would be beneficial to distinguish, after assesment, the exemptions which constitute the revenues of tomorrow (in this respect the EFZ's experience is edifying) from the expenses that rather confine to annuities without added value for the economy.

The application of such measures will certainly give rise to difficulties. But it would be appropriate to comply with the spirit of these provisions which aim at promoting an important part of our economy.

Either way, the tax provisions of the Finance law-decree 2017, will undoubtedly strengthen our industrial sector which must be able to ensure its function with Morocco's global businesses, take advantage of the European and eventually Chinese relocations as well as Morocco's opening towards the African markets.