Finance Act for the year 2025

The Official Journal of the Tunisian Republic No. 149 of December 10, 2024, published Law No. 48-2024 of December 9, 2024, concerning the Finance Act for the year 2025. The main tax measures provided for in the new Finance Act are as follows:

Corporate Income Tax (CIT) and Individual Income Tax (IIT):

1. CIT Rate Increase

• Description: The general Corporate Income Tax (CIT) rate has been increased from 15% to 20% for profits realized from January 1, 2024.

• Impact:

  • Increased Government Revenue: This significantly increases the tax burden on corporations, generating substantial additional revenue for the government.

  • Reduced Corporate Profitability: Higher taxes can reduce corporate profitability, potentially impacting investment decisions and economic growth.

  • Potential for Increased Costs to Consumers: Businesses may pass on the increased tax burden to consumers through higher prices for goods and services.

    
    

2. IIT Bracket Changes

• Description: The tax brackets for Individual Income Tax (IIT) have been revised, effective from January 1, 2025.

• Impact:

  • Potential Impact on Taxpayers: The impact on individual taxpayers will depend on the specific changes to the tax brackets.

    • Higher Income Tax for Some: If the changes result in higher tax rates for certain income levels, it could reduce disposable income for those taxpayers.

    • Tax Relief for Others: If the changes include lower tax rates for specific income brackets, it could provide tax relief for those individuals.

  • Government Revenue: The overall impact on government revenue will depend on the specific changes to the tax brackets and the resulting tax collections.

3. Conjunctural Contribution

• Description: A new 2% contribution on profits, with a minimum of 1,000 dinars, has been introduced for 2025. This applies to companies with a 2023 turnover exceeding 20 million dinars (excluding VAT) and subject to the 15% CIT rate.

• Impact:

  • Increased Tax Burden on Large Companies: This primarily affects large companies with significant turnovers, increasing their tax liability.

  • Government Revenue Generation: This measure is expected to generate substantial additional revenue for the government.

4. Deduction Changes

• Description: From 2024, deductions for repair and maintenance expenses, except for business property tax, will no longer be allowed for rental income. However, the standard deduction rate for rental income has been increased from 20% to 25%.

• Impact:

  • Reduced Deductions for Landlords: Landlords will face reduced tax deductions, potentially increasing their tax liability.

  • Increased Tax Burden on Rental Income: This change may discourage some landlords from renting out their properties, potentially impacting the rental market.

  • Partial Offset: The increased standard deduction rate for rental income provides some partial offset to the reduction in allowable deductions.

Regarding VAT, Customs Duties, Excise Duties and Other Taxes

1. Reduced VAT Rate on Household Electricity:

• Description: The VAT rate on household electricity consumption not exceeding 300 kWh per month is reduced from 13% to 7%.

• Impact: This measure aims to alleviate the tax burden on households with low electricity consumption, particularly during periods of rising energy prices. It provides some relief to low-income households and encourages energy conservation.

2. Modified VAT Rates on Real Estate Sales:

• Description:

  • A new VAT rate of 19% applies to the sale of residential properties by real estate developers.

  • The VAT rate is reduced to 7% for properties priced below 400,000 dinars.

• Impact:

  • The 19% rate for developers is expected to increase government revenue.

  • The reduced rate for affordable housing aims to stimulate demand and make housing more accessible to low- and middle-income households.

3. Temporary VAT Exemption for Community Enterprises:

• Description: Community enterprises are exempt from VAT for 10 years from their date of incorporation on all acquired goods, services, and equipment.

• Impact: This measure aims to encourage the creation and development of community enterprises, which play a crucial role in the social and solidarity economy. The VAT exemption reduces their costs and allows them to invest more in their activities, fostering economic and social development.

Overall Impact:

The 2025 Finance Act introduces significant changes to the Tunisian tax system, impacting both businesses and individuals. Key objectives include:

• Increased Government Revenue: Higher corporate income tax rates, a new conjuncture contribution, and the 19% VAT rate on real estate sales by developers are intended to boost government revenue.

• Supporting Purchasing Power: The reduced VAT rate on household electricity and the lower VAT rate on affordable housing aim to alleviate the financial burden on households and improve affordability.

• Stimulating the Economy: The VAT exemption for community enterprises and other measures are designed to encourage economic growth and support key sectors.

Regarding Tax Audits and the Fight Against Tax Fraud

1. Authorized On-Site Inspections for Property and Foreign Currency Assessments:

• Description: Tax authorities are now authorized to conduct on-site inspections to assess the value of real estate and foreign currency during preliminary audits.

• Impact: This measure is designed to enhance tax compliance and prevent tax evasion by allowing tax authorities to gather more accurate information about taxpayers' assets. It gives tax authorities greater powers to verify the declared value of properties and foreign currency holdings.

2. Mandatory Reporting by Healthcare Professionals:

• Description: Healthcare professionals are now required to provide information to the tax administration about the services they provide.

• Impact: This measure aims to improve the tax administration's ability to detect undeclared income. By requiring healthcare professionals to report their income, the tax authorities can more easily identify discrepancies between reported income and the value of services provided.

3. Unified Procedures for Appeals Against Tax Assessments:

• Description: The procedures for appealing against tax assessments have been unified, and all appeals must now be filed with the court of first instance that has jurisdiction over the relevant regional tax center.

• Impact: This measure is intended to streamline the appeals process and make it more efficient. By centralizing appeals, the tax administration can better manage its caseload, and taxpayers can expect more consistent treatment.

Overall Impact:

These measures collectively aim to strengthen tax enforcement and reduce tax evasion in Tunisia. By granting tax authorities more powers to conduct investigations, requiring greater transparency from taxpayers, and streamlining the appeals process, the government seeks to increase tax revenue and ensure a more equitable tax system.

Tax Amnesty

1. Relaxation of the Regularization of Assessed Tax Debts:

• Description: This measure makes it easier for taxpayers to settle various tax debts, including penalties related to tax audits, late payment penalties, and legal costs, as well as fines and unpaid or amended tax returns.

• Impact: The goal is to encourage taxpayers to regularize their tax situation by offering more favorable terms. This allows the government to recover some unpaid tax revenue and reduce tax-related disputes.

2. Tax Relief for Property Taxes:

• Description: Property taxes on both built and unbuilt land are reduced.

• Impact: This measure aims to alleviate the tax burden on property owners. It can also stimulate the real estate market by making property ownership more attractive.

3. Relaxation of the Regularization of Assessed Customs Duties:

• Description: Penalties related to customs duties are waived.

• Impact: This measure encourages businesses to regularize their customs situation by eliminating financial penalties. It can help improve the competitiveness of Tunisian businesses and facilitate trade.

Overall Impact of the Tax Amnesty:

The primary objectives of the tax amnesty are to:

• Increase Government Revenue: By encouraging taxpayers to regularize their situation, the government can recover some unpaid tax revenue.

• Simplify Debt Collection: By easing the terms of regularization, the tax administration can reduce the cost of collecting debts.

• Stimulate the Economy: By reducing the tax burden on businesses and individuals, the amnesty can encourage investment and consumption.

• Improve Taxpayer Confidence: By offering concessions, the government demonstrates its willingness to work with taxpayers and foster a more favorable tax climate.

In summary, tax amnesty is a tool used by governments to achieve various objectives, such as regularizing tax situations, stimulating the economy, and improving the relationship between the tax administration and taxpayers.

Other Provisions

1. Increase in the Social Security Contribution Rate (CNSS):

• Description: The CNSS rate has been increased by 1%, with employees and employers each contributing an additional 0.5%.

• Impact: This measure is designed to generate additional revenue for the social security system to fund benefits such as pensions, healthcare, and unemployment insurance. However, it may also increase the cost of labor for employers and reduce disposable income for employees.

2. Establishment of an Unemployment Fund:

• Description: A new unemployment fund has been created to provide benefits to workers who lose their jobs due to economic reasons.

• Impact: This measure provides a safety net for workers who become unemployed through no fault of their own. It can help to stabilize the economy by providing income support to unemployed workers, who can then continue to consume goods and services.

3. Withholding Tax on Online Marketplace Sales:

• Description: A 3% withholding tax has been introduced on amounts collected by delivery companies on behalf of non-registered individuals selling goods online.

• Impact: This measure aims to bring online marketplace sellers into the formal tax system and ensure that they pay their fair share of taxes. It can also help to level the playing field between traditional retailers and online sellers.

4. Forfeiture of Dormant Accounts:

• Description: Banks, brokerage firms, and other financial institutions are now required to transfer to the government any deposits and interest that have remained unclaimed for 15 and 5 years, respectively.

• Impact: This measure is intended to help recover dormant funds and reduce the administrative burden on financial institutions. It can also provide additional revenue for the government.