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Egyptian tax system inefficient and unfair: Economists

Leftist and liberal economists agree in debate on Egypt taxation that the current system is inefficient, but differ on what changes should be made

Marwa Hussein , Wednesday 12 Mar 2014
Ramlet Boulaq
View of Nile City Towers from Ramlet Boulaq (Photo: Shaimaa Mahmoud)
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Tax revenue in Egypt is very low compared to other countries, reaches around 17 percent of GDP. 

“It is a very low level compared to 89 percent for European Union countries and 25 percent in Turkey and Morocco,” says Heba Khalil, an economic researcher, opening a debate between a leftist and liberal experts on the tax system on Tuesday, organised by Free Voice, the Arab Network for Media Support.  

Revenue is not, however, the only problem. Tax distribution between different categories is also unfair, as sales taxes, considered by economists a regressive tax, forms 40 percent of tax revenues, while tax on private companies only forms 34 percent. 

“A detailed contemplation of Egyptian taxation reveals it is not as just as it seems,” says Abdel-Fatah Al-Gebaly, a liberal economist and former advisor to the finance ministry.

“A small group of citizens pay taxes while revenue from free professionals, for example, only reached some LE818 million during the last fiscal year,” he adds. 

“There is more injustice in tax collection since 2005, as the share of sales tax paid by consumers and income tax revenue from wage earners increased while revenue from customs and companies decreased,” said Wael Gamal, a leftist economy journalist. 

Gamal believes tax should be imposed on capital gains on the stock market, and fees should be increased on quarry extraction, which have been fixed for decades. 

The two taxes were discussed and rejected by the last Shura Council, reminded Al-Gebali, underlining that interest groups pressure to avoid such legislation.

“According to Forbes magazine, the wealth of the richest nine Egyptians is $23 billion. A big part of this money was not taxed as it comes through mergers and acquisitions in the stock market," said Gamal. 

The implementation of a property tax to be imposed on properties worth LE2 million and more has also been repeatedly postponed in recent years.

Gamal believes an increased income tax bracket, announced Wednesday, is a good step but is not the solution, as “the problem is in the details.”

Egypt's interim government is currently studying the implementation of an income tax increase of five percent, to be applied on individual taxpayers whose annual income exceeds LE1 million for a period of three years.

“Income tax is progressive on low and middle income revenues and tends to be more flat on higher incomes. It is mainly the middle class who bear the burden,” said Gamal.

The main government plan is to increase tax revenues by imposing a value added tax (VAT) on all goods and services with few exceptions. VAT appeared to be a main point of difference between the two economists.

“It is an easy option to impose a tax on consumption, as the government will not face businessmen lobbies,” argued Gamal, adding that such a tax would result in inflation.

Al-Gebaly, for his part, defends VAT, saying it is largely applied worldwide. “Some 145 countries have adopted the tax currently, compared to 30 countries in 2009."

Gamal believes that Egypt needs more innovative taxes, for instance a tax on polluting industries to be directed towards healthcare improvements.

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