The African Tax Administration Forum (ATAF) released a new report, Tax Expenditures in Madagascar: Assessment and Outlook, examining the fiscal and development impact of tax exemptions, reduced rates, credits and other preferential tax regimes in Madagascar.
The report found that tax expenditures have grown considerably, rising from 1.5% of GDP in 2015 to 4.2% in 2023. In 2023 alone, revenue foregone reached MGA 2,948.88 billion, a 47.4% increase from 2022. VAT accounted for approximately 49% of total tax expenditures, while customs duties represented 23.7%.
While these measures have supported investment and development objectives in sectors such as agriculture, mining and renewable energy, the report found that their overall effectiveness has been mixed. In some cases, the expected longer-term benefits — including local job creation, infrastructure development and technology transfer — have remained limited.
The report also highlighted concerns about how some incentives were targeted. Broad-based tax expenditures can disproportionately benefit larger businesses and higher-income households, while intended beneficiaries, including smallholder farmers and local communities, may receive limited benefits.
From incentives to measurable impact
The publication called for a stronger approach to designing, managing, and evaluating tax expenditures. Key recommendations included:
- better targeting incentives towards sectors and beneficiaries that can generate jobs, investment and inclusive growth;
- conducting systematic ex-ante and ex-post evaluations to determine whether incentives deliver their intended results;
- introducing sunset clauses for new incentives and considering limits on the overall fiscal cost of tax expenditures;
- improving transparency through regular reporting on revenue foregone and benefits achieved; and
- strengthening institutional capacity, data collection and analysis for tax expenditure management.
The report further recommended that Madagascar review its corporate tax incentive framework in light of the global minimum tax rules, including consideration of a Qualified Domestic Minimum Top-up Tax (QDMTT) to protect its domestic tax base.
Produced by ATAF in collaboration with Madagascar’s Ministry of Economy and Finance, the report contributed to ongoing efforts to strengthen the management of tax expenditures and ensure that fiscal incentives support development while safeguarding the domestic revenues needed to finance public priorities.
