The recently enacted 2025 Finance Law in Tunisia has sparked widespread debate and controversy. Central to the discussion is a provision that reduces value-added tax on raw olives for pickling, proposed by MP Abdelkader Ben Zineb from Nabeul governorate. This measure, along with other controversial articles, has drawn public criticism over potential conflicts of interest and allegations of corruption. Additionally, the law introduces significant changes to income taxes and domestic borrowing practices, aiming to address Tunisia’s chronic budget deficits. While these reforms could potentially lead to a more equitable tax system, they also carry risks such as increased inflation and economic instability. The success of this legislation will be crucial in determining whether Tunisia can achieve sustainable economic recovery.

Public outcry erupted when the Tunisian parliament approved a provision to waive fines related to the 2023 parliamentary elections. These penalties, ranging from $11,700 to $22,180 per MP, were linked to improper use of public financing during the campaign. Critics argue that this move allows MPs to pardon themselves for financial misconduct, fueling suspicions of corruption. However, the law also includes measures aimed at reforming the tax system. For instance, it introduces additional brackets for personal income tax and raises the marginal tax rate for high earners from 35% to 40%. The corporate income tax rate has also been increased from 15% to 20%, with special rates for banks and insurance companies rising to 40%. These changes are intended to make the tax system more progressive and fair, though they have faced resistance from the business community.

The new finance law reflects a shift away from neoliberal policies that dominated Tunisia’s tax system over the past four decades. Previously, tax reforms had simplified the personal income tax structure and reduced rates for high earners, leading to a decline in revenue. Corporate income tax rates were similarly lowered, resulting in diminished contributions from private sector entities. As a result, the share of corporate income tax revenues fell from 20% in 2013 to just 13% in 2024, while personal income tax revenues rose to 28%. The 2025 Finance Law aims to reverse these trends by introducing lower rates for low-income earners and increasing the burden on higher earners. The government hopes that these changes will reduce inequality and provide more resources for essential public services like healthcare and education.

In addition to tax reforms, the law emphasizes domestic borrowing as a means to finance the budget. Plans include taking on more loans from national banks and accessing zero-interest loans from the Central Bank, totaling up to $2.19 billion. This strategy may pose risks to the banking system and overall economy, particularly if it leads to crowding out private loans for investment. There are also concerns about inflation, as increased borrowing could inject more money into the economy, potentially driving up prices. However, recent data shows that inflation has remained stable, partly due to strong agricultural seasons and tourism revenue. The effectiveness of these measures will depend on factors such as export productivity and tourism levels, which remain unpredictable.

The 2025 Finance Law represents a pivotal moment for President Kais Saied’s economic model. By relying on domestic resources like taxation and borrowing, the government hopes to steer Tunisia toward a more independent and progressive path. However, the risks are substantial. If the anticipated increases in corporate tax revenues fail to offset losses from personal income tax reductions, the budget deficit could deepen. Moreover, there are concerns about the potential impact on private investment and inflation. To ensure success, Tunisia must carefully manage these reforms and balance its reliance on volatile exports with efforts to boost domestic production. Only time will tell if these bold moves will lead to sustainable economic recovery or further challenges for the country.