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Monday, 14 October 2019

Lawyers and the VAT

Ziad Bahaa-Eldin , Wednesday 12 Oct 2016
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I can’t find the words to express my esteem for the legal profession and the Egyptian Lawyers Syndicate, which I’ve been a member of since 1987, and the decades-long role it has played in protecting rights, liberties, and the rule of law.

So it distresses me to see some colleagues and members of the syndicate board opposing the application of the new value added tax on the legal profession, since such a stance is contrary to justice, law, and the mission of our bar. 

The VAT, which went into effect on September 8, 2016, applies to all goods and services unless explicitly exempted by law. It applies to lawyers as well, who sell a professional service. The law set the VAT rate on legal services at 10 percent, less than the general rate of 13 percent (slated to jump to 14 percent next September). 

Arguing that the legal profession is necessary to protect citizens’ rights and that the tax will limit low-income groups’ access to this protection, some lawyers are demanding that the legal profession be exempted in full from the VAT. Moreover, since medical services are exempted from the VAT, they reason, it’s only right that lawyers receive the same treatment. 

I personally have reservations on the timing of the VAT given its inflationary impact at a time when Egyptians are already facing severe price hikes. I am also troubled that the tax went into effect so hastily without clarification of several of the implementing regulations.

But in principle, I’m in favor of the VAT because it expands the tax base and pushes off-the-books economic activity into the formal sector, especially professional services, whose providers often evade income tax.

 What troubles me about the position of the Lawyers Syndicate is not its objection to the VAT per se. It’s the demand that the legal profession be exempted from the tax while it continues to be applied to other goods and services. This I find to be opposed to the bar’s sacred mission of defending truth, justice, and equality.

The arguments cited by my colleagues are not persuasive. Like legal services, there are numerous goods and services subject to the VAT that are vital to society. The argument that the VAT limits citizens’ access to their legal rights is misplaced; what restricts access is the plodding, overextended legal and judicial system that has not been overhauled for decades. 

Enabling low-income citizens’ to exercise their right to legal redress involves entirely different mechanisms, first and foremost allowing civic associations to freely operate in all areas of legal protection—not offering lawyers a tax exemption. 

Finally, the argument that medical services are exempted, so law services should be too is also misguided. The VAT exemption applies to services in hospitals and health centres, not to doctors’ professional fees. If I’ve misunderstood this point and doctors’ fees are exempted as well, it would be better to demand that those fees be taxed as well instead of seeking the same exemption. 

The cause we must all stand behind is tax justice and the need to fight rampant tax evasion. Tax evasion places a disproportionate tax burden on civil servants, whose wages are taxed at the source, on Egyptian and foreign firms that are careful about tax compliance, and on workers at bodies that run their financial affairs properly. 

But there are vast areas in the economy that are untaxed and unrecognized, and maintaining this situation inflates the public deficit and increases the burden on registered companies and workers who do pay taxes. 

Some justify the status quo from what seems at first glance to be a progressive perspective, arguing that formalising, and thus taxing, all economic activity will hurt white-collar professionals, small businesses, and limited income groups.

In fact, the real winners in the current situation are not the poor, whose incomes and profits are negligible anyway, but high-income professionals and businesspeople who benefit from the current tax system while claiming to protect marginal activities from inclusion in the formal economy. 

So I urge my fellow lawyers to reconsider their position and forego protection for a professional interest that is at odd with the public interest. Their duty is to confront the attempts of any social group to arrogate to themselves unfair advantages or benefits that conflict with the principles of justice, equality, and citizenship.

There may indeed be a need for a dialogue with the state and Finance Ministry on the VAT, its inflationary impact, difficulties in implementation, and the burden it places on society at an already difficult time. But such a dialogue should be inclusive, not geared to protecting a particular profession or group. 

*The writer holds a PhD in financial law from the London School of Economics. He is former deputy prime minister, former chairman of the Egyptian Financial Supervisory Authority and former chairman of the General Authority for Investment.

A version of this article was published in Arabic in El-Shorouq newspaper on Monday, 10 October.

 

 

 

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