With an increase of 2 points in their share of VAT, or nearly 6.3 billion additional dirhams (MMDH), the regions and municipalities should benefit from a substantial financial boost if the PLF 2025 is adopted in state.
With an increase of 2 points in their share of VAT, or nearly 6.3 billion additional dirhams (MMDH), if we base ourselves on the record VAT revenues of 2023, the regions and municipalities should benefit from a substantial financial boost if the PLF 2025 is adopted as is.
In application of the provisions of framework law No. 69-19 on tax reform, aimed at strengthening State taxation in the promotion of territorial development and the consolidation of spatial justice, it is proposed to increase the share minimum of the product of the value added tax (VAT) allocated to the budgets of local authorities from 30% to 32%”, extract from the 2025 Finance Bill.
If this measure is maintained after its final adoption, it would represent a significant lever for strengthening the own resources of local authorities. Indeed, with record VAT revenue reaching MAD 316.26 billion in 2023, an increase of 2 percentage points in the share going to the regions.
This additional financial windfall should allow local elected officials to have increased room for maneuver to finance territorial development projects meeting the specific needs of their populations. Infrastructure, public facilities, local services, local economic development, etc., there are multiple potential areas of intervention.
On an economic level, this massive contribution of public resources to the territories could constitute a powerful leverage effect to boost investment, job creation and the development of local productive ecosystems. Subject of course to optimal allocation of these funds by the communities concerned.
It remains to be seen whether this tax reform will be accompanied by a real transfer of State powers.
Strengthening the financial resources of local authorities by increasing their share of VAT revenue certainly constitutes an important lever. But this reform will only be able to produce its full effects if it is accompanied by a real transfer of powers from the State to the regions, provinces and municipalities.
“It remains to be seen whether this tax reform in favor of decentralization will be accompanied by a real transfer of powers from the State to the communities. A sine qua non condition for optimal use of these new resources in a logic of subsidiarity and bringing public action closer to the citizen,” reacts an analyst.
As it stands, many areas relating to territorial development and the management of local affairs remain under the supervision of central administrations. A situation which often leads to overlapping skills, procedural cumbersomeness and a distance between decision-making centers and realities on the ground. Giving more financial resources to communities without at the same time granting them more prerogatives would amount to perpetuating this inefficient framework. The allocation of additional resources from VAT would then risk suffering from a lack of subsidiarity and proximity to the real needs of the populations.
Beyond skills, decentralization must also be achieved by strengthening the human, technical and managerial capacities of local authorities so that they can fully assume their new prerogatives.
Finally, this process can only succeed if it is part of a logic of increased responsibility and accountability of local elected officials towards their constituents. In short, in return for the financial efforts made by the State, a real transfer of management powers as close as possible to the field is necessary to optimize the use of the financial windfall from VAT and respond effectively to citizens’ expectations.
Compensation
If the increase in the share of VAT redistributed to local authorities represents a powerful lever to support local development, it will also constitute a significant shortfall for the State’s public finances.
On the executive side, this additional drain on VAT revenue will necessarily have to be compensated to preserve the overall budgetary balance. With nearly 6.3 billion dirhams less in the coffers, the government will inevitably have to find other resources to make up for this shortfall. Several avenues are possible but each will have its constraints. An increase in the tax burden on other taxes such as income tax, corporate tax or registration fees would make it possible to recover additional revenue. But this option risks increasing the bill for households and businesses. A reduction in public spending constitutes an alternative to explore, even if the room for maneuver is limited given the socio-economic issues. Here too, savings will have to be targeted to preserve priority investments.
The State could also focus on new sources of revenue such as the increased mobilization of the State’s real estate assets, the broadening of the tax base or the establishment of new royalties. In any case, these decisions must be carried out with great rigor so as not to undermine the country’s competitiveness or excessively increase the overall tax burden. But the final impact on the taxpayer should not be significant in view of the other tax measures planned.
In this complex equation, maintaining the course of the tax reform undertaken seems reassuring. With the continued rationalization of tax expenditures, the fight against evasion and the broadening of tax bases, the State would have compensation margins without risking hampering the competitiveness of the productive sector or the purchasing power of households. .
The challenge will therefore be to carefully balance efforts to consolidate public finances without hampering economic recovery, while freeing up the resources essential for territorial development. A delicate balancing act for fine public finance strategists.
Around 6 billion additional dirhams for local authorities
With record VAT revenue reaching 316.26 billion dirhams in 2023, the planned increase of 2 points in the minimum share allocated to local authorities represents a real breath of financial oxygen for the latter.
Indeed, if we base ourselves on the total amount of VAT revenue collected last year, an increase from 30% to 32% in their share would translate into nearly 6.3 billion additional dirhams in their budgets.
This substantial financial windfall would offer local elected officials significant new room for maneuver to finance their territorial development policies and meet the priority needs of their constituents.
Several strategic action levers would then be open to them: investments in basic infrastructure (roads, water/sanitation networks, public facilities, etc.) to reduce the glaring deficits in this area in many regions; strengthening the quality of local public services (education, health, transport, etc.) and bringing them closer to users; reinforced support for local economic development and support for businesses, key vectors of job and wealth creation; rehabilitation of public spaces, greening of cities, and development of new urban developments contributing to the improvement of the living environment. So many priority projects which could be accelerated thanks to this massive injection of long-term financial resources from VAT.
It now remains to ensure that this budgetary effort made by the State is counterbalanced by mechanisms of good governance, citizen control and performance evaluation at the territorial level. Guarantee of optimal use of these public funds for the equitable development of territories and the well-being of populations.
Bilal Cherraji / ECO Inspirations
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