Throughout the past several months, followers of news of Egypt’s recent fiscal policies have debated which tax policy would most effectively finance Egypt’s budget. The debate depicts two main contentions: The first contention advocates adopting a progressive tax scheme that would serve the purpose of achieving social justice by transferring the biggest bulk of the tax burden to the rich and businesses. The second contention suggests indirect taxes such as sales tax and value added tax which would serve to widen the tax base and protect against possible capital flight and decreasing investment rates that could result from taxing capital.
So which side is right? How much do corporations actually contribute to the tax burden in Egypt? An examination fo Egypt’s state budgets from 2008 to 2012 is telling.
Data on Egypt’s state budgets shows that taxes collected from corporations contributed to 24 percent of government revenues between 2008 and 2012. This represents 47 percent of the total direct tax proceeds.
Some might infer then that corporations, specifically those registered with the General Authority for Investments (GAFI), do in fact occupy a significant share of Egypt’s tax burden. However, looking at the providers of these tax revenues paints a different picture.
The top providers of revenues from corporate taxes are in reality the General Authority for Petroleum (GAP) and the General Authority for the Suez Canal (GASC); the share of all other companies towards the tax proceeds is negligible. As such, the state is paying itself taxes under the umbrella of corporate taxes.
The General Authority for Petroleum, along with its foreign partners, contributed 54 percent to the total corporate tax in the period from 2008 to 2012, which is 13 percent of government revenues and 20 percent of total tax proceeds.
General Authority for the Suez Canal came in second, providing 16 percent of total corporate tax; which is 4 percent of government revenues and 6 percent of total tax proceeds.
This indicated that GAP and GASC combined provided around 70 percent of corporate tax, even though they are both owned by the state and the Egyptian public. Where is the contribution of the other businesses?
“Other businesses” refers to all companies operating in industry, trade, tourism and agriculture sectors; such as cement companies, steel companies, ceramics, textile, banks, hotels and aviation etc. Those companies could be state-owned, private or foreign, large or small. All of these companies combined contribute 30 percent of corporate tax, which is seven percent of government revenues and 11 percent of total tax proceeds.
Thus the claim that businesses contribute a quarter of government revenues is a misleading calculation.
The fact is that more than two thirds of corporate tax revenue comes from external proceeds submitted by governmental institutions (GAP and GASC) to another governmental institution; namely the treasury.
In the meantime, income taxes for individuals contributed to nine percent of total government revenue from 2008 to 2012. Most of these individuals are employees and workers in both the private and public sectors who have their taxes cut from their salaries prior to receipt.
Furthermore, indirect taxes such as sales tax and customs provided 46 percent of total tax proceeds. These indirect taxes are extra charges on consumption and are endured mainly by the broad base of citizens who end up paying taxes based on consumption rather than on their ability. Thus, indirect taxes serve the purpose of financing state’s budget rather than achieving social justice.
Thus when it comes to evaluating Egypt’s tax burden from 2008 to 2012, 13.2 percent of it was allocated to businesses while working individuals endured 28.8 percent, totaling to the total tax price of 47.9 percent.
This period indicates a bias within government policies toward capital which comes at the expense of the general public, workers, and employees.
Unlike Egypt, other successful capitalist countries whose economies are largely dependent on the private sector, have managed to attract capital while maintaining a significant tax contribution from businesses. This includes, Denmark where businesses contribute 28 percent of tax revenue as opposed to 2.7 percent provided by workers. Other examples include New Zealand where businesses provide 32 percent of tax proceeds as compared to 2.4 percent by workers, and Israel where companies contribute 27.7 percent and workers 5.9 percent.
The combined contribution of GAP and GASC which totals more than two-thirds of corporate taxes, means that the state is either incapable or unwilling to impose and collect taxes from private companies which represent the largest sectors of the Egyptian economy in the fields of industry, trade, tourism and other fields of production.
This takes us back to square one; that is, those who are in control of capital do not carry any significant share in financing the Egyptian government’s tax revenues.
Today, after a revolution which demanded social justice, Egyptians are asked to accept the continuation of the same policies they revolted against, and to bear the brunt of financing the continuously growing budget deficit through an increase of indirect taxes.