Transcript Diapositive 1

Investment incentive
system in Tunisia
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THE QUESTION
• To know whether using tax and financial
•
instrument to promote private investment
is cost efficient option
OR it would be better to rationalize these
incentives while investing in other more
efficient instruments by focusing more on
improving company business climate (ie:
infrastructure networks and investment
and trade facilitations).
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CONTENTS

TUNISIA AN ATTRACTIVE LOCATION FOR INVESTMENT

CURRENT TAX AND FINANCIAL INCENTIVE SYSTEM
(Strengths, Weaknesses, Opportunity, Threat )

NEEDED REFORMS (a gradual process of reforms)
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AN ATTRACTIVE LOCATION FOR
INVESTMENT
• A strategic position in the mediterranean area
• Solid macro economic fondamental
• Strong achievements in human capital
•
•
•
development
Increasing openess of the economy
A diversified economy
Generous investment incentives
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A STRATEGIC POSITION IN THE EURO-MEDITERRANEAN AREA
• Strategic geographical
position: Tunisia is considered
to be at the crossroads of
continents
• It is located in North Africa. At
140km from Italy
• It is less than three hours
flying time from major
European, sub-saharan Africa
and Middle East cities.
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Solid macro economic fundamental
• Solid GDP growth since the mid-1960s Constantly growing real incomes of
5 % a year since mid- 1960(2007 forecast : 6,1%)
• Fiscal and current account deficits have remained manageable(-2.7% and 2.9%, respectively)
• Inflation low: 2.9% a year(1996-2006)
• Public externel debt declined to 54.5% in 2006 and is expected to come
down further (Tunisia has always honored its commitments and never asked
for rescheduling of debt)
• Exhibiting resilience to exogenous shocks especially in the two latest
decades
(such as a severe drought in 2002, the september 11 shock which hurt tourism)
• GDP per capita reached $7,447(in PPP) in 2005: the second highest in the
maghreb(after Libya’s)
• Since mid- 1960’s contribution to per capita GDP growth
Productivity (51%) >traditional factor contribution (49% )
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Strong achievements in human capital development
• This reflects the country’s steady investment in education and health since
the early 60’s offering today
 Human development index well above the average for developing
countries
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Life expectancy is 74.4 years
80% of households belong to middle class and own their homes
Poverty has gone down to less than 4%
 A skilled workforce with a great capacity of apprenticeship and a
recognized know-how
-
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1 out of 4 Tunisians is in school (The budget for education accounts 7% of GDP)
About 57% of new job seekers are university graduates, with competitive
labor costs compared to other emerging markets.
500,000 is the forecast of the number of students in Tunisia by 2009.
 Faster Demographic transition than in neighboring countries:Fertility rate
declined from 7 children per woman in 1961 to 2.04 in 2005
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increasing openness of Tunisian economy to
international competition
• Productivity growth reflects also the opening of the
industrial sector to competition (as well as rapid development of an
offshore sector largely integrated with EU production networks)
• Tunisia has opted to integrate the world economy in a
“preferential fashion” :
- 96% of tunisian external trade is made under FTA regime: EU
implemented by 2008), Great Arab FTA,EFTA, Aghadir,Turkey…
(already
- Average tariff faced by EU industrial products dropped from about
100% in 1996 to about 4% in 2007( while the non preferential
partners average is about 24% )
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A diversified economy
• Electronics : leading sector on a
steep rise (more than 15%)
Services
56.9 %
• Services gaining ground (57% of
Manufacturing
18.7 %
Non
manufacturing
11.8 %
GDP in 2006)
Agriculture &
Fisheries
12.6 %
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Export-oriented economy
• The Tunisian economic growth is mainly
driven out by exports: 50% the share of
exports in GDP.
• The share of fuel exports plummeted
(from 52% in 1980 to 13% in 2006)giving
way to textile and clothing (from 18% to
33% ) and engineering and electrical
components (from 9.5% in 1995 to 19%
in 2006)
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A competitive country
• The Global Competitiveness Report 2006-2007
released by the World Economic Forum ranked
Tunisia out of 125 developed and emerging
countries
- 30th in terms of global competitiveness
- 26th in terms of business competitiveness
• Tunisia is rated « flat » with the prospect of
upgrading to « stable » by standard and poor’s
and european company Fitch Ratings(BBB and
BBB+ by japanese rating agency)
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CURRENT TAX AND FINANCIAL INCENTIVE SYSTEM
(Strengths, Weaknesses, Opportunity, Threat )
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The investment incentives code
• Common incentives granted to all invesments in the activities eligible for
invesment incentive code
• Specific incentives granted according to major priorities
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Export
Regional development
Agriculture development
Transfer of technology
Environment protection
• Additional incentives granted to projects having a particular interest to
the national economy or to the border zones
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Strenghts
• Free investment (Investment can be freely carried out by a simple
declaration)
• Generous system (fully exporting and regional development
regimes)
• Supporting institutions
• Almost all sectors are covered (except mining, energy, the
financial sector and domestic trade which governed by special
legislation)
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Free investment
Investment can be made after submitting a simple
« declaration of investment intentions » to
• The Agriculture Investment Promotion Agency for
agriculture and fishing activities
• The Tunisian National Tourism Board for tourism activities
• The Tunisian National Handicrafts Board for handicrafts
• The Industry Promotion Agency for industrial and all
remained activities
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Generous system
Most used instruments
• Corporate income tax holiday: 41%
• Tax exemptions: 34%
• Investment grants:13%
This reflects the country’s incentive strategy:
• Fully exporting sectors
• Regional development
• Agriculture development
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Major incentives for fully exporting companies
• 10-year full tax exemption on profits, then a
reduced income tax of 10% from the 11th year of
operation, onward
• Duty free raw material and equipment imports
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Major investment incentives in
regional development areas
• 10-year full corporate income tax exemption and
a 50% tax deduction on profits or revenues the
next 10 years.
• Investment grants of 15% to 25 % of the
investment cost depending on the selected area
• Assumption of social costs
• Assumption of certain infrastructure expenses
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Supporting Institutions
• Many supporting institutions such as investment
promotion agencies, are at the investors’ service
to help them set up their companies in Tunisia in
the best possible conditions.
• Investors are entitled to freely benefit from a
one-stop-shop to complete all their formalities
within 2 days
• Companies can also perform their customs
clearance on site
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However, compared to other high
growth countries and despite solid
macro economic fundamental and
generous investment incentives in
place, Tunisian growth was driven
more by public and less by
private investment.
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Weaknesses
• Exception to free investment:For Some services
activities ,foreign investment requires prior
agreement of the investment commission
• Costly system
• Many sectoral investment promotion agencies
• Less targeted system : Multiplicity of exemption
regimes (Inside and out side investment incentive
code)
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Investment incentives cost
800
• 5 US$ billion(cumulative)
700
600
Financial:20%
• 10% of government revenue
500
• Double in 1O years
400
300
Tax:80%
200
100
0
• Rapid increase of financial
incentives(×3) comparing to
tax incentives(×1.5)
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
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Opportunities
•
Free transfer of profits and capital Same advantages for
Tunisian nationals and foreigners
•
Rationalize these incentives while investing in other more
efficient instruments by focusing more on improving
company business climate
•
Specialized study of the projects
•
Some high potential sectors (Electric and electronic
industry, Automotive components)
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Threat
• Risk of no local reinvestment of foreign companies profits
• Delay Risk of Tax transition process (to substitute tariff
revenue for intern tax revenue such as VAT…)
• Risk of management and monotoring problems for
promotion investment agencies and understanding
difficulties for investors.
• Much more incentives to use capital factor rather than labor
factor while job creation is the first development priority
• Not limited in time incentives
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SWOT
STRENGTHS
WEAKNESSES
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Free investment
Generous system(Same advantages for
Tunisian nationals and foreigners)
Supporting institutions
Almost all sectors are covered
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•
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A prior agreement is needed for Some
not fully exporting service activities
Costly system
Many sectoral agencies
Less targeted system :Multiplicity of
exemption regimes (Inside and out
side investment incentive code)
OPPORTUNITIES
THREAT
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Free transfer of profits and capital
Rationalize these incentives while
investing in other more efficient
instruments
Specialized study of the projects
Some high potential sectors (Automotive
components)
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•
No local reinvestment of profits
Delay Risk of Tax transition process
Risk of management and monotoring
problems for agencies and
understanding difficulties for
investors.
Not limited in time incentives
The system encourage more the use of
capital factor than labor factor
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NEEDED REFORMS (a gradual process of reforms)
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• In order to
 Reinforce Strengths,
 Avoid Weaknesses,
 Exploit Opportunities,
 Eliminate Threat,
• A gradual process of reforms is proposed in order
to establish through operational and strategic
actions a new system easy to
• Understand
• Implement
• Measure
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ACTIONS
1. Reduce the dichotomy onshore/offshore
2. Improve procedures
3. More efficient instruments to promote
private investment
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Reduce the dichotomy
onshore/offshore
• Simple and reduced common law
taxation regime
• Unique, simple and limited
preferential regime
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Simple common law
taxation regime
• Progressive reduce of corporate tax rate taking into
account tax competition with similar countries (such as
Morocco) in order to
 Secure the foreign investor
 Reduce the incentive gap between the offshore and on
shore sectors,
 Increase integration and technology transfer between the
two sectors. .
• Reducing the number of VAT rate while assessing the
social impact of eliminating tax exemptions on the poorest
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Unique, simple and limited
preferential regime
(Short term actions)
Reviewing investment incentive code by
• Removing the unused or less used tax and
financial incentives,
• Keeping some financial incentive as well as
customs duties exemptions or reductions granted
to equipment from countries outside the EU in
order to reduce the gap between preferential and
the MFN tariffs and avoid the phenomenon of
"trade diversion"
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Unique, simple and limited
preferential regime
(long term actions)
• One unique incentive code including all
preferential regimes with simple, exceptional
and limited in time incentives focusing on
projects with high economic profitability.
• One unique investment promotion agency (in
stead of current different sector agencies), in
charge of managing, monitoring and assessing
investment incentives.
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Improve procedures
• Establishing incentive management software for
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monitoring and evaluating tax and financial
incentives in order to ensure growing
rationalization of investment aid through better
incentive targeting;
Manual of procedures describing the different
stages for granting incentives and clearly
defining the role of each partner in the
investment promotion effort.
Generalized electronic tax payment in order to
Make easier to companies paying taxes
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More efficient instruments
to promote private investment
• Strengthen assets
 Reducing the rigidity of labor market: Many studies show
the importance of the dismissal rules relaxation and
removing firing restrictions in promoting private investment
and reducing unemployment in Tunisia.
 Gradual liberalization of capital account toward total Dinar
convertibility
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Reduce transaction costs
• Strengthening infrastructure networks and improving their
qualities while decreasing their costs
• Strengthening the public-private partnership especially in the
service sector (economic growth locomotive in Tunisia)
• Trade facilitation with post and targeted control (to avoid the
100% control of goods) through prior and efficient risk
management.
• Deepening and harmonizing trade agreements by reducing
current large gap between preferential and MFN tariff in order to
avoid “trade diversion”.
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RECENT TAX REFORM
The government has been gradually reducing the
incentive gap between onshore and offshore
sectors:On december 2006, a fiscal law
• Reduced the onshore corporate tax from 35% to 30%
• Raised the offshore corporate tax from 0% to 10%
• Offshore firms are allowed to sell up to 30% of their
production in the onshore sector and be subject to the
onshore tax regime on that proportion
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Other tax mesures
• Increase VAT reimbursement to 100%
• Rebalance VAT rates(6,12,18%) and
suppressed the 29% rate
• Reduced the number of Tariff rates from
54 rates(2001) to only 9 rates
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TRADE FACILITATION MESURES
• Much effort was deployed to facilitate
global integration through trade facilitation
mesures
• Electronic documentation procesing was
introduced(tunisia trade net)
• Streamlined technical controls
• Improved customs procedures
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Numerous logistics projects in progress
• Deep Water Port
• Enfidha Airport (The 8th)
• Industrial Zone : Enfidha –
Hergla
• 6 projected logistics
platforms
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Photos from Tunisia
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Thank You for Your
Attention
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Tunisia: a competitive economy