Finance Minister Amr El Garhy launched on Wednesday a new project to develop the taxation system, funded by the European Union with a 1.2 million euro grant according to a statement from the ministry.
The project aims at creating job opportunities through economic development programmes that rely on improving tax policies, including cross-border policies, and exchanging tax statistics.
The project also aims at integrating practices that achieve financial inclusion for small and medium enterprises and microenterprises, said Pascal Saint-Amans, director of the Center for Tax Policy and Administration at the Organisation for Economic Co-operation and Development (OECD), which is contributing to the funding, according to the ministry's statement.
Egypt’s tax revenues represent 72 percent of the government’s revenues and taxes are valued at 13-14 percent of GDP, according to estimates for fiscal year 2017-2018, El Garhy said.
Egypt is working actively to achieve financial inclusion, stopping the tax base shrinking, putting a system in place to fight tax evasion, regulating pricing, and partnering with international organisations such as the EU and the OECD, El Garhy added.
Saint-Amans said that tax reforms in Egypt have played a role in simplifying the tax system and improving the tax structure.
A number of challenges still remain, according to Saint-Amans, including increasing tax revenues as a percentage of GDP and having a more transparent and incremental tax system in order to achieve social justice.
“In order to avoid tax evasion and at the same time enhancing tax administration, there needs to be incentives for the informal sector and small and medium enterprises,” Saint-Amans said.
The finance ministry is working on simplifying the tax system for SMEs and microenterprises, in addition to legislative reforms as part of tax reforms, El Garhy said.
Tax collection does not contradict attracting investments, said Angel Gutierrez Hidalgo, head of the economic reform section of the EU delegation to Egypt, saying tax collection allows the state to achieve development and develop the infrastructure, according to the ministry's release.
Gutierrez Hidalgo praised Egypt’s implementation of the value-added tax and tax dispute resolution legislation.
The Egyptian government has been working on increasing tax revenues in a bid to plug the budget deficit.
Tax revenues increased by 62 perccent year-on-year to EGP 249 billion in the first half of fiscal year 2017-18, the finance ministry announced in January.
Value-added tax revenues amounted to EGP 121 billion, an 83 percent year-on-year increase.
The World Bank had announced in October it expects Egypt's budget deficit to decrease to 8.8 percent of GDP by fiscal year 2017/18, mainly driven by an increase in tax revenues and the energy subsidies reform.
El Garhy said the government is aiming at decreasing the budget deficit to 9.6-9.8 percent of GDP by the end of the current fiscal year and to 8.5-8.7 percent of GDP next fiscal year.
The government also expects to decrease debt to GDP to 97 percent by the end of this year, and 90 percent by the end of fiscal year 2018/2019.