Role of the tax reform Unique Professional Contribution (UPC) in the formalization of the informal sector: Case of the region Beni-Mellal Khenifra

Abstract

Despite the importance of tax reforms in developing countries, and particularly in Morocco, few empirical studies at the regional level have assessed the actual impact of the Unique Professional Contribution (UPC) on the formalization behaviors of informal sector actors; this constitutes a gap in the literature that this research aims to fill. The main objective of this research is to analyze the role of the CPU in the formalization of the informal sector in the Beni Mellal-Khenifra region. To this end, this study adopts a mixed-methods approach, combining quantitative and qualitative methods. Data were collected through questionnaires administered to informal sector actors who have formalized their activities through the UPC, as well as semi-structured interviews conducted with officials from the Regional Tax Office. Data processing is based on a sequential explanatory approach, utilizing descriptive and analytical statistical analyses, notably univariate and bivariate analyses (chi-square and Fisher’s exact tests), supplemented by measures of association to assess the strength of relationships between variables for the quantitative data, and complemented by a thematic content analysis of the qualitative data. The results show that the UPC is a key driver of the informal sector’s transition to the formal sector, due to the simplification of tax procedures (Chi-square = 15.775; Asymptotic significance (two-tailed): 0.003), the reduction in the tax burden (Chi-square = 15.958; Asymptotic significance (two-tailed): 0.003) and access to social security coverage (Chi-square = 20.440; Asymptotic significance (two-tailed): 0.000), indicating statistically significant associations between these dimensions and formalization. This research thus makes an original empirical contribution by highlighting, within a Moroccan regional context, the mechanisms through which the UPC influences the formalization decisions of informal sector actors, while offering useful implications for public policymakers regarding fiscal policy and economic inclusion.

Classification JEL: H2, H21, H25, H3, H39

Paper type: Empirical Research