Egypt to introduce a 10 to 12 percent VAT

[DJKeefy]

Egypt’s government will finalize a bill on a value added tax (VAT) by end of January, Mamdouh Omar, head of the Income Tax Authority, said during a conference on Sunday, Al-Ahram Arabic reported.

The VAT will be fixed at a unified rate between 10 to 12 percent and will be imposed on all goods and services with a few exceptions such as subsidized food stuffs like oil and wheat.

"The tax rate will be higher on other goods including alcoholic beverages, cigarettes and cars. The VAT should replace the sales tax currently imposed on 17 goods and services," Omar said.

Egypt's government has announced on several occasions since 2007 that it is going to implement the VAT in order to increase fiscal revenues, but the decision has been repeatedly postponed.

The VAT also formed part of the economic program the IMF discussed with the Egyptian government after the 25 January revolution in 2011 for a $4.8 billion loan.

However, the IMF agreement was postponed during and after the rule of former president Mohamed Morsi. Discussions were suspended following his ouster.

VAT, as well as sales tax, which was implemented in Egypt in 1991, are often referred to as regressive taxes because the tax burden is shared by all consumers whether rich or poor.

"The VAT increase puts pressure on the poor. It is a regressive tax and leads to a redistribution of the wealth in the wrong direction," said Mahmoud El-Khafif, a spokesman of the United Nations Conference on Trade and Development (UNCTAD) in September 2012.

Sales tax revenues are expected to jump from LE83 billion in 2012/13 budget to LE126.5 billion in 2013/14 if the VAT is enforced. In this case, sales taxes will account of 35.5 percent of total fiscal revenues in the current fiscal year versus some 21 percent in 2012/13.

Source: http://english.ahram.org.eg/News/91434.aspx

[Dusak]

I can understand why they need to do this, but as mentioned its going to put a lot of extra pressure on the Egyptians pockets. But having said that, considering its a cash society, I think that they will have to make a side law stating that all businesses have a till to record their sales.

[Chocolate Eclair]

So right "D", everyone knows receipts are something not known about here, its all wooden draws and shoe boxes.

[Hafiz]

The application to all food except subsidized oil and wheat subsidized oil and wheat will definitely be regressive but , in the case of Egypt, much more regressive than might first appear. The reason for this is that non-subsidized food is such a large percentage of household expenditure when compared with households in the West and

To soften the impact on the poor, most countries give a permanent reduction of income tax on the tax rate applying to the poor. Even in rich Australia there were both offsets and exemptions for food, medical costs and educational expenses but there was a strong tax collection system and, in the case of Egypt, the tax collection system is weak. The last point is important in the case of Egypt because the standard argument of economists that the more exemptions the more difficult the administration of the tax particularly if your tax collection system is poor.

Alternatives to the VAT could include the proper and uncorruct administration of the existing laws and new or reinstated taxes on the rich like capital gains (unbelievably low at 10% until removed by this government in August) and inheritance (none). The top income tax defies logic at 25%. All of these taxes are relatively easy to collect and offer an alternative to a VAT. A hike on existing taxes on imported luxury items would also reduce the need for new taxes. Clamping on outlays like the food subsidy claimed by the well off might also be the way to go: for example, hundreds of thousands, maybe millions claim the benefit for dead relatives and it is claimed that a similar number have claimed eligibility through corrupt means.

The availability of easy options which apply in most countries would be a fairer way to go but would involve conflict with the small elite. Clearly conflict with tens of millions is less frightening,

Mubarak tried increasing taxes, including on food, and this lead to widespread protests. Apparently the biggest beef of protestors was about taxes on food. No doubt the army remembers and has better ways of dealing with any trouble with their new proposals.