Since the 2027 draft Finance Bill was unveiled, the announcement that employees earning less than MAD 10,000 a month in net pay would be exempt from income tax has prompted a flood of questions. Even human resources managers, accountants and other professionals familiar with payroll calculations have struggled to make sense of it.
Some have interpreted the figure as a gross salary threshold; others have taken it to mean that anyone earning more than that amount would automatically be liable for tax. The calculation is more complicated. Understanding the reform requires distinguishing three separate figures: gross salary, net taxable income and actual take-home pay. They are not interchangeable.
The first point to clarify is that the 2027 draft Finance Bill would raise the annual net taxable income threshold for income tax exemption from MAD 40,000 to MAD 60,000, equivalent to MAD 5,000 a month. This is the amount on which the tax authorities calculate income tax, not the salary stated in an employment contract or the gross amount paid by an employer.
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Several deductions are applied to gross pay to arrive at net taxable income. These include mandatory social security contributions, notably to the CNSS and compulsory health insurance scheme (AMO), pension contributions and other deductions permitted under tax rules. There is also a standard deduction for professional expenses, which the draft bill proposes to raise from 25% to 45% for employees currently covered by that rate. The deduction would, however, remain capped at MAD 35,000 a year.
These successive deductions explain why someone earning more than MAD 10,000 a month before tax may, depending on their circumstances, have a substantially lower net taxable income. Conversely, take-home pay alone is not enough to determine the amount on which income tax is assessed.
When presenting the 2027 draft budget, Lekjaa said employees taking home less than MAD 10,000 a month would be exempt from income tax. That figure is a benchmark drawn from simulations and data used by the tax authorities. It should not be mistaken for a uniform statutory threshold that applies regardless of the details of an individual payslip.
In practice, the calculation depends on several factors: gross salary, social security contributions, deductible professional expenses, any supplementary pension contributions and tax relief for dependants. Two employees on comparable salaries may therefore face different tax liabilities.
Consider a single employee and a married employee with dependent children. Even if their taxable incomes are identical, the married employee may qualify for additional tax relief. Under Morocco’s General Tax Code, the annual reduction is MAD 600 for a spouse and MAD 600 for each dependent child.
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A married employee with three dependent children could therefore receive an annual tax reduction of MAD 2,400. A single employee would not qualify for that relief. In some circumstances, the difference could be enough to eliminate the tax bill altogether.
This helps explain why the promised exemption for employees taking home less than MAD 10,000 a month should be understood as a broad estimate rather than a single calculation rule applying equally to everyone.
Family tax relief can bring the bill down to zero
Take an employee whose annual income tax liability, before relief for dependants, is MAD 1,200. If the employee is married with one dependent child, the MAD 600 reduction for a spouse and the MAD 600 reduction for the child would wipe out the entire bill. The employee would owe no income tax.
A single employee with the same taxable income, however, would still have to pay the MAD 1,200.
This distinction matters when calculating how much taxable income ultimately translates into take-home pay. It also shows why the MAD 10,000 figure cited by the minister does not mean that every employee earning less than that amount automatically receives the same tax treatment. The outcome depends on their individual circumstances.
Another important consideration is how an employee’s pay package is structured. Some companies offer a relatively low basic salary supplemented by various allowances, including housing, representation, management responsibilities and other benefits.
But calling part of a salary an allowance does not automatically make it tax-exempt. Its tax treatment depends on what the payment actually covers and whether it meets the legal conditions for exemption. An allowance that fails to satisfy the requirements of the General Tax Code may therefore be added back to taxable income.
This is no minor technicality. It goes to the heart of tax fairness: what someone pays should reflect their actual ability to pay, not simply how their employer chooses to divide or label the different elements of their remuneration.
In other words, adding more allowance entries to a payslip is not, in itself, a way to artificially reduce the income tax base. The tax authorities retain the power to examine the nature of those payments and whether they are justified.
A reform that primarily benefits those already paying income tax
This is perhaps the most widely misunderstood aspect of the reform. Contrary to what some politically driven interpretations might suggest, raising the tax-free threshold does not amount to a general pay rise. It reduces the tax burden on employees who currently pay income tax.
The distinction is fundamental. An employee who already pays no income tax cannot benefit from a further reduction in a tax they do not owe. Someone currently paying MAD 50 a month could keep that additional MAD 50 if the reform eliminates their tax liability. But that does not mean they will receive a MAD 500 pay rise.
This is precisely where the gap emerges between the average saving announced and what individual employees will actually gain.
Around three-quarters of employees currently pay no income tax. According to figures cited by the finance minister, the reform is expected to increase the proportion of exempt employees to 87%. That would bring an additional 12 percentage points of the employee population into the tax-free category. Those who already pay income tax and remain liable after the reform would see their bills fall by varying amounts, depending on their earnings and personal circumstances.
The MAD 500 monthly saving mentioned by Lekjaa therefore concerns employees whose existing tax liabilities are large enough to allow such a reduction. It is neither a bonus nor an automatic salary increase for all employees.
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A simple example illustrates the point. An employee currently paying MAD 50 a month in income tax who becomes fully exempt under the reform would see their take-home pay rise by MAD 50. However favorable the new tax brackets might be, they could not save more than the tax they previously paid.
An employee with a larger tax bill, by contrast, could see a more substantial reduction. That is why the savings must be assessed individually rather than measured against a single headline figure.
It is also worth remembering that employees whose incomes were already tax-exempt will not see their salaries rise simply because the exemption threshold has increased. The reform will therefore primarily benefit those who previously paid income tax, with the gains varying according to earnings.
Why has the government stopped short of cutting the top rate to 20%?
The reform also raises questions about how far it goes in redistributing the tax burden, particularly for higher earners. The draft bill provides for a gradual reduction in the top marginal income tax rate from 37% to 30% by 2031, alongside an overhaul of the tax schedule built around three rates—10%, 20% and 30%—in addition to the tax-free bracket.
That falls short of the 20% top rate floated by the Authenticity and Modernity Party (PAM) during its election campaign. A deeper cut would certainly have benefited high earners, but it would also have delivered substantial tax savings to people in the upper income brackets.
The decision not to reduce the top marginal rate to 20%, as envisaged in the PAM’s election platform, can also be understood in terms of balancing the taxation of employment income against that of capital income. Consider an entrepreneur whose company pays corporation tax at 20%, followed by a 10% withholding tax on distributed dividends. On a profit of MAD 100, the company pays MAD 20 in corporation tax. The shareholder then pays MAD 8 in dividend tax on the remaining MAD 80. The combined tax bill is MAD 28, an effective rate of 28% on the original profit.
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By comparison, if the top marginal income tax rate were cut to 20%, an employee whose highest slice of earnings fell within that bracket would pay just MAD 20 in tax on each additional MAD 100 taxed at that rate, rather than the MAD 30 envisaged under the reform’s eventual tax schedule. The difference would be particularly significant for income in the highest brackets. Such a system could therefore leave a highly paid employee facing a lower tax rate on the upper portion of their earnings than the combined rate applied to company profits distributed to a shareholder.
That comparison does not mean the two tax regimes are directly equivalent. Employment income is taxed progressively, whereas the 28% figure combines taxes paid by the company and its shareholder, assuming the entire profit is distributed. It nevertheless highlights an important question of tax fairness. Tax rules should not encourage an entrepreneur to choose one legal structure over another solely because it offers a tax advantage. Retaining a top marginal rate of 30% can therefore be seen as an attempt to preserve a degree of consistency between the taxation of earnings from work and income distributed as dividends.
