{"id":13294,"date":"2026-09-14T14:46:37","date_gmt":"2026-09-14T13:46:37","guid":{"rendered":"https:\/\/mipa.institute\/?p=13294"},"modified":"2026-09-14T14:54:18","modified_gmt":"2026-09-14T13:54:18","slug":"associations-facing-tax-pressure-three-paths-to-reform","status":"publish","type":"post","link":"https:\/\/mipa.institute\/?p=13294&lang=en","title":{"rendered":"Associations Facing Tax Pressure: Three paths to reform"},"content":{"rendered":"
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Associations face a heavy tax burden that threatens their financial and operational sustainability. To address this, current tax policies must be reviewed to create a system that reflects the unique, non-profit nature of civil society organizations.<\/span><\/h4>\n<\/blockquote>\n

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Introduction<\/em><\/strong><\/span><\/h5>\n

Despite increasing demands [1] in recent years to reform the tax system governing nonprofit organizations (NGOs), the existing system continues to place them in a hybrid position. While they are expected to deliver social and developmental services that advance public interest, they remain subject to a tax regime designed primarily for commercial economic actors. This duality has direct implications for financial sustainability, as NGOs find themselves required to expand their activities and develop their human resources to ensure continuity, without benefiting in return from a tax framework that recognizes the unique nature of this role.<\/p>\n

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Foundations of Tax Policy for Associations<\/em><\/strong><\/span><\/h5>\n

While the 1958 Dahir regulating the right to establish associations recognizes their non-profit nature [2], NGOs are subject to corporate tax under Article 2 (paragraph 3) of the General Tax Code, based on the \u201cmaterial criteria\u201d adopted by the legislature to prevent tax evasion. Exemption [3] remains contingent upon proving nonprofit status through three cumulative criteria: non-commercial activities, the absence of competition with the private sector, and operating conditions that differ from those of a for-profit business assessed against product, target audience, price, and advertising. Nevertheless, demonstrating these criteria remains challenging in practice. For instance, it is difficult to define and assess the notion of “non-commercial management” and, on that basis, distinguish between a surplus generated by an NGO to be reinvested in furthering its statutory objectives and a profit that the law prohibits from being distributed among its members. The same challenge applies to the concept of competition. In the absence of clear and objective indicators, the tax administration is vested with broad discretionary powers to determine whether these conditions are met. As a result, NGOs are placed in a state of institutional vulnerability, where their initiatives and projects become subject to the tax administration’s interpretation. This creates legal uncertainty and threatens their stability, particularly in light of tax audits and reassessments that may occur unexpectedly.<\/p>\n

The tax burden on civil society actors in Morocco is not limited to corporate tax; it extends to other forms of taxation, such as \u201chidden taxes\u201d on civil society. Value-added tax (VAT) is the most prominent manifestation of this burden. When an association is treated as an \u201cend consumer\u201d and denied the VAT refund mechanism available to businesses, VAT becomes an additional cost deducted directly from the budgets of development programs. This impact is compounded by the accumulation of other obligations, such as a 30% withholding tax on wages, registration and licensing fees, and local taxes. This cumulative burden drains associations\u2019 already fragile financial and administrative structures.<\/p>\n

In addition, associations are required to comply with a range of tax obligations, whether they are taxable or exempt, such as maintaining accounting records in accordance with the applicable accounting system. Associations are also required to document their transactions with legally valid invoices, while reporting obligations include the declaration of incorporation, tax returns, electronic filing, etc [4].<\/p>\n

In this context, leading international practices demonstrate that contemporary legislative approaches have moved beyond the concept of “strict tax neutrality” toward aligning tax frameworks with the specific nature of non-profit organizations. This is reflected, for example, in the legislation of countries such as France, which allows associations to engage in ancillary income-generating activities up to a specified financial threshold (\u20ac76,679) [5]. Similar approaches are found in the legal frameworks of Finland and Azerbaijan [6], while Swedish legislation adopts an even broader model by granting tax preferences based on the public-interest sectors in which organizations operate, such as environmental protection, culture, and health [7]. Furthermore, United Nations standards emphasize the need for a distinct tax regime for NGOs, recognizing their unique role and differentiating them from commercial enterprises [8].<\/p>\n

The foundations of Morocco\u2019s current tax system have a direct impact on the nonprofit sector [9] in terms of the sustainability of its work, the continuity of its activities, and its financial stability. The challenge of \u201cdual functionality\u201d stands out as the most significant obstacle facing the nonprofit sector, due to the structural conflict between the current tax system and the nature of nonprofit work. Consequently, the tension between the logic of social service and market regulations places a heavy burden on NGOs, threatening their institutional sustainability and gradually leading to the disappearance of organizations that are unable to comply with mandatory tax requirements [10].<\/p>\n

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Challenges in Tax Policy for Associations<\/em><\/strong><\/span><\/h5>\n

In the absence of a comprehensive tax reform for NGOs, as called for in several reports by independent national institutions such as the National Human Rights Council and the Economic, Social, and Environmental Council, tax law in Morocco continues to be applied selectively to associations in a manner that conflicts with international standards on freedom of association [11] For example, tax incentives remain limited to certain categories of associations working in the fields of disability, health, social welfare, and sports, as well as those recognized as being of \u201cpublic benefit\u201d [12] knowing that the number of associations holding \u201cpublic benefit\u201d status remains small due to the complexity of the procedures required to obtain this designation. According to the latest available data, only 257 associations [13] have been granted public benefit status, out of an estimated 200,000 associations [14] operating in Morocco [15].<\/p>\n

The civil society sector also faces another structural challenge stemming from the absence of an official, transparent, and realistic legal classification system for associations, despite the recommendations of the National Dialogue calling for the establishment of a National Register of Associations. Many stakeholders view this gap as a contributing factor to shortcomings in tax equity. This situation is further exacerbated by the tax system’s failure to account for the employment dimension of civil society organizations [16]. Although the sector generates approximately 170,000 full-time jobs, according to the 2019 National Survey conducted by the High Commission for Planning (HCP) [17], it benefits from no tax incentives to support employment. For example, no flat-rate tax relief is available for NGOs that create jobs, despite recommendations by the Economic, Social and Environmental Council (CESE). This undermines the sustainability of employment within the sector and weakens the developmental role of civil society organizations. Furthermore, the limited availability of official data on the number of employees declared by NGOs to the National Social Security Fund (CNSS), as well as the nature of their employment contracts (whether standard or alternative forms of employment), constitutes a major obstacle to the design of evidence-based and effective public policies.<\/p>\n

In this context, the government should establish an incentive-based tax framework that takes into account the non-profit nature of civil society organizations. This could include granting income tax exemptions to NGOs employing no more than a legally defined threshold of staff, in recognition of the structural financial vulnerability that characterizes the majority of organizations in the sector. Most NGOs currently lack the financial, administrative, and institutional capacity to absorb the costs associated with maintaining a permanent and fully staffed workforce.<\/p>\n

There is also a need to revise the criteria governing public funding to ensure that grants are required to cover operational expenses and staff salaries, thereby supporting the sustainability of employment within civil society organizations. Such a reform should be accompanied by the institutionalization of employees’ social protection rights, including the mandatory registration of all employees with the national social security system. This would strike a balance between alleviating the financial burden on associations and safeguarding the dignity, rights, and job security of civil society workers [18].<\/p>\n

Finally, the civil society sector faces a dual structural challenge. On the one hand, the absence of comprehensive tax incentives for international donors limits opportunities for sustainable financing and constrains the growth of civic initiatives. On the other hand, the legal vulnerability of civil society organizations is compounded by limited tax awareness. According to the Economic, Social and Environmental Council (CESE) [19], many NGOs fall into a state of tax non-compliance due to the mistaken belief that they are exempt from tax declaration requirements.<\/p>\n

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The Complexities of Tax Policy Reform for Associations<\/em><\/strong><\/span><\/h5>\n

Efforts to reform the tax policy governing civil society organizations face significant bureaucratic and institutional obstacles. Part of the government administration justifies its reluctance by emphasizing the need to preserve fiscal balance [20] and prevent the misuse of public funds [21], particularly in the absence of accurate and transparent statistical data on tax revenues generated from the civil society sector. Despite this cautious stance, several official reform initiatives have emerged in the past that challenged the prevailing position of the Ministry of Finance and the tax administration. These initiatives originated from both Parliament and the government department responsible for relations with civil society. They included proposals to exempt public grants to NGOs from taxation, as well as the development of policy frameworks, most notably the Ministry’s Action Plan for Enhancing Public Funding, which recommended granting tax exemptions and fiscal incentives [22] to associations receiving public funding. However, these initiatives have remained largely aspirational rather than evolving into actionable public policy. The absence of a clear and sustained political commitment within a comprehensive reform framework has ultimately undermined efforts to modernize the tax regime governing civil society organizations.<\/p>\n

At another level, advocacy efforts to reform the tax policy governing civil society organizations have been marked by three major milestones since 2013: the National Dialogue on Civil Society, the Rabat Dynamics Initiative [23], and the MERLA Initiative. Among these, the MERLA Initiative stands out for its sustained advocacy, particularly through the submission of annual policy memoranda timed to coincide with parliamentary deliberations on the Finance Law [24]. Nevertheless, its practical impact has remained limited due to weak communication and outreach capacities, as well as its relatively limited engagement with the broader civil society sector. As a result, advocacy efforts have so far achieved only modest policy outcomes [25]. Despite these limitations, these initiatives have played a significant role in the Moroccan context by fostering a shared awareness among civil society organizations of what many perceive as an inequitable tax regime. They also reflect a cumulative learning process in which advocacy strategies have gradually evolved from broad, context-driven demands toward more targeted, technically grounded, and legally informed policy proposals.<\/p>\n

Overall, despite a number of limited reforms to the tax framework governing civil society organizations, progress has remained modest. One notable example is the 2021 Finance Law [26], which introduced a number of tax incentives related to personal income tax following extensive consultations between the MERLA Coalition and representatives of both the executive and legislative branches. However, these measures have remained limited in scope and temporary in nature. This underscores the need for a comprehensive and sustainable reform of the tax regime applicable to civil society organizations in order to strengthen their financial sustainability and enhance their autonomy in mobilizing resources. Such an approach would be consistent with reforms already introduced in other areas of civil society regulation, including the legal framework governing contractual volunteering, where donations provided within the framework of contractual volunteer activities are exempt from taxation pursuant to Article 34 of Law No. 06.18 on the Regulation of Contractual Volunteering.<\/p>\n

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Tax Reform: What Future Scenarios?<\/em><\/strong><\/span><\/h5>\n

The future direction of tax policy for associations in Morocco can be assessed through several current indicators of change, most notably the state’s strategic orientations, reflected in the outcomes of the New Development Model<\/em>, which envisions associations becoming employment-generating actors; socio-economic pressures, reflected in the growing need to professionalize the associative\/third sector in order to absorb skilled workers and contribute to reducing unemployment; and the growing momentum of civil society advocacy, reflected in the emergence of civil society initiatives that have made tax justice in the associative sector a specific focus of their policy positions and advocacy efforts directed at government and parliamentary actors.<\/p>\n

Based on these trends, the future of tax reform for civil society organizations can be envisaged through three interconnected pathways. The first is a comprehensive reform<\/em> scenario, which seeks to institutionalize a distinct tax regime that reflects the specific nature of civil society organizations. However, this pathway remains contingent upon the emergence of strong political and civil society leadership, including influential civil society coalitions and political parties willing to champion the issue within Parliament, to overcome the limitations of current advocacy efforts. The legal instrument for this pathway would be a comprehensive amendment to the General Tax Code through Parliament, under the leadership of the Ministry of Economy and Finance and in coordination with the government authority responsible for relations with civil society. Its impact could be measured by the civil society sector’s contribution to Gross Domestic Product (GDP).<\/p>\n

Alongside this, a second and more likely pathway is that of incremental reform<\/em>, which adopts a pragmatic approach based on negotiating specific issues, such as exempting employees of civil society organizations from income tax. This approach seeks to transform these issues into incremental gains that gradually reduce the existing policy deadlock. Its legal instrument lies in the continued incorporation of incentive measures into the annual finance laws, alongside the implementation of the necessary regulatory provisions, under the responsibility of the Ministry of Economy and Finance and the ministries responsible for the social sectors (education, health, labor, etc.). Its impact should be measured by the number of small and medium-sized NGOs that declare their employees and effectively benefit from the income tax exemption.<\/p>\n

The third pathway is the continuation of the status quo. In addition to perpetuating the current reform deadlock, this scenario is also a cause for concern, as the government may find itself compelled to make at least limited reform concessions in order to maintain the consistency of its political discourse and prevent the further weakening of the civil society sector. This approach seeks to rationalize the existing framework by establishing institutional mechanisms to facilitate tax compliance without undertaking a comprehensive reform of the tax system. Its legal instrument would consist of issuing regulations to simplify the existing tax exemption procedures under the joint responsibility of the ministries of the interior, economy, and finance and the government authority responsible for relations with civil society. Its impact should be measured by a reduction in the rate of unexpected tax audits targeting associations and an increase in tax awareness within the civil society sector.<\/p>\n

 <\/p>\n

Reforming Tax Policy for Associations<\/em><\/strong><\/span><\/h5>\n

An incremental reform approach remains the most appropriate for the Moroccan context. This approach seeks to move from addressing immediate procedural and technical constraints toward establishing a comprehensive and coherent tax regime for civil society organizations through three interrelated measures:<\/p>\n

First. In the Short Term: Legal Certainty and Immediate Incentives<\/strong><\/span><\/p>\n

As an immediate reform priority, efforts should focus on addressing the administrative complexities that hinder the day-to-day operations of civil society organizations. This can be achieved by introducing immediate exemptions from registration and stamp duties to reduce the financial burden on NGOs, alongside reductions in payroll tax withholding rates. These measures would encourage them to declare their employees and, over time, broaden the tax base through greater professionalization of the sector. At the same time, the scope of tax deductions available to donors, both individuals and companies, should be expanded to competitive levels. This would strengthen domestic sources of funding and reduce reliance on external grants, provided that these measures are accompanied by national programs to enhance the tax-related capacities of civil society actors and promote voluntary compliance.<\/p>\n

Second. In the Medium Term: Tax Alignment and Socio-Economic Activity<\/strong><\/span><\/p>\n

The second phase should focus on strengthening the economic model of NGOs by establishing clear and practical criteria and indicators to distinguish commercial profit from income-generating activities intended to support alternative forms of self-financing. These indicators should not be limited to quantitative thresholds based on the volume of transactions but should also take into account the nature of the activities, including the categories of beneficiaries, the application of solidarity-based pricing, and the way resources are allocated. The paper proposes introducing a tax-exempt turnover threshold for secondary activities, drawing on successful international models, while ensuring that the relevant procedures are simplified to enable the tax administration to implement them effectively. This approach should also be accompanied by a review of tax incentive rules to eliminate the distinction between NGOs based on their legal status (ordinary versus public-benefit). This would help ensure equal access to resources and prepare the civil society sector to play a more active role in sustainable development.<\/p>\n

Third. In the Long Term: Structural and Institutional Reform<\/strong><\/span><\/p>\n

The reform process should culminate in redefining the institutional relationship between the state and the legal framework governing associations, thereby moving beyond fragmented approaches. This strategic shift requires the harmonization of the accounting system for associations with international tax standards. Although this is an ambitious undertaking that entails considerable time and technical resources, it represents the only guarantee of transparency. In this regard, the paper proposes considering the establishment of an independent national mechanism, similar to regulatory bodies, to oversee the financial and tax affairs of civil society organizations in line with international standards for the oversight of associations. Such a mechanism would help ensure sound governance in monitoring tax exemptions and prevent the misuse of civil society organizations for tax avoidance purposes, while also promoting tax awareness and the production of official data on taxation within the civil society sector.<\/p>\n

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 <\/p>\n

Note: <\/strong><\/span>The terms “associations,” “non-governmental organizations” (NGOs)<\/em>, and “non-profit organizations” are used interchangeably throughout this paper.<\/p>\n

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References:<\/em><\/strong><\/span><\/p>\n

[1].<\/em><\/strong> The preparation of this paper coincided with the launch of consultations in Rabat by both the MIRLA Coalition and the associations affiliated with the Rabat Declaration Dynamic, with the aim of adopting the Charter for a Joint Action Strategy of Civil Society Movements for a Fair Legal, Financial, and Tax Framework for Associations. For more information on the Charter, see:<\/em><\/small><\/p>\n

https:\/\/bawaba.org\/%D8%AA%D8%B9%D8%B2%D9%8A%D8%B2<\/em><\/a> Accessed on: 08 May 2026<\/strong>.<\/em><\/small><\/p>\n

[2].<\/em><\/strong> The Economic, <\/em>Social, and Environmental Council (CESE), Report on the Status and Dynamics of Associative Life, Self-Referral No. 28\/2016, pp. 54\u201357.<\/em><\/small><\/p>\n

[3].<\/em><\/strong> Ibid., pp. 54\u201357.<\/em><\/small><\/p>\n

[4].<\/em><\/strong> See: Memorandum of the Ministry Delegate to the Head of Government in Charge of Relations with Parliament and Civil Society on the Tax Regime Applicable to Civil Society Associations, pp. 9\u201311. Available at: <\/em>https:\/\/www.mcrpsc.gov.ma\/%D8%A5%D8%B5%D8%AF%D8%A7%D8%B1%D8%A7%D8%AA-%D8%<\/em><\/a> Accessed on: 28 February 2026<\/strong>.<\/em><\/small><\/p>\n

[5].<\/em><\/strong> Quelle fiscalit\u00e9 pour une <\/em>association legal?<\/small><\/p>\n

https:\/\/www.legalplace.fr\/guides\/fiscalite-association<\/a> Accessed on: 28-02-2026<\/small><\/p>\n

[6].<\/em><\/strong> National Human Rights Council (CNDH), Memorandum on Freedom of Association in Morocco, December 2015, p. 27.<\/em><\/small><\/p>\n

[7].<\/em><\/strong> Registration of Civil Society Associations: A Guide to Primary Laws from 10 Countries in Europe and the Middle East and North Africa, European Center for Not-for-Profit Law (ECNL), 2018, pp. 108\u2013109.<\/em><\/small><\/p>\n

[8].<\/em><\/strong> Memorandum on Improving the Legal Environment Governing the Tax Status of Associations in Morocco, Movement of Initiatives for the Reform of the Legal Framework for Associations in Morocco, 2018.<\/em><\/small><\/p>\n

[9].<\/em><\/strong> Ahmed Arhmouch, The Legal Environment of Associations in Morocco: An Evaluation Study with Alternative Proposals and Advocacy Pathways, Moroccan Association for Solidarity and Development, in cooperation with the United States Agency for International Development (USAID), pp. 67\u201369.<\/em><\/small><\/p>\n

[10].<\/em><\/strong> These findings are drawn from the results of field interviews (March\u2013April 2026) conducted with 11 participants, including civil society actors, experts, academics, and government officials, representing the regions of Rabat-Sal\u00e9-K\u00e9nitra, F\u00e8s-Mekn\u00e8s, and Casablanca-Settat. The interviews focused on the following themes: stakeholders in tax policy; views on the principle of tax neutrality; legal inconsistencies; the legal classification of associations; nonprofit employment and taxation; and participants’ involvement in advocacy initiatives aimed at reforming the tax regime applicable to associations.<\/em><\/small><\/p>\n

[11].<\/em><\/strong> United Nations Human Rights Council, Report of the Special Rapporteur on the Rights to Freedom of Peaceful Assembly and of Association, Maina Kiai, Promotion and Protection of All Human Rights, Civil, Political, Economic, Social and Cultural Rights, Including the Right to Development, Twentieth Session of the Human Rights Council, 2012, pp. 23\u201324. Available at:<\/em><\/small><\/p>\n

https:\/\/docs.un.org\/ar\/A\/HRC\/20\/27<\/em><\/a> Accessed on: 15 May 2026<\/strong>.<\/em><\/small><\/p>\n

[12].<\/em><\/strong> See:<\/em><\/small><\/p>\n