Fiscal Reform for a Strong Tunisia: Short Term Technical Assistance Report

for review by the United States Agency for International Development. The report focuses on the fiscal reform efforts in Tunisia, with a primary objective of developing an effective and efficient Value-Added Tax (VAT) refund process. The VAT refund process in Tunisia is currently marred by inefficiencies and complexities, resulting in a long and cumbersome procedure that deters taxpayers from submitting claims. The reimbursement of VAT credits has not been given high priority, and a small number of requests are submitted and processed. This practice threatens the sustainability of VAT by distorting its mechanism. The applicable refund procedure requires taxpayers to present multiple documents and invoices, imposing a heavy burden of control and an excessively long refund procedure. The report highlights several issues and problems encountered during the mission, including the consultant's inability to visit the General Tax Department (DGI) premises or speak with officers outside of formal meetings. This limited access hindered the consultant's ability to draw up a draft guide to VAT credit refunds. Additionally, the consultant requested figures on February 27th, but none were provided by the time of the consultant's departure three weeks later. The main recommendations of the report include abolishing the system of VAT-free purchases and introducing exports within the scope of VAT application at zero duty. The report also recommends replacing the current cumbersome and inefficient procedures with a single refund scheme. This would simplify the VAT refund process, reduce the burden of control, and increase the efficiency of the system. The report emphasizes the importance of improving the economic neutrality of VAT, which would allow Tunisia to reduce the negative effect of the tax on growth by replacing other more distorting taxes. The central role given to VAT justifies the need for a more efficient and effective VAT refund process. The implementation of these recommendations would contribute to the development of a strong and sustainable fiscal system in Tunisia.