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Egypt: Great expectations for small businesses

A draft bill aims to make life easier for Egypt’s small and medium-sized enterprises, reports Safeya Mounir

Safeya Mounir , Wednesday 18 Sep 2019
Great expectations for small businesses
A draft bill governing SMEs is set to be discussed in parliament Source: Reuters
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Parliament’s next legislative session will see discussions on a draft law backing small and medium-sized enterprises (SMEs), the Ministry of Finance stated last week.

Finance Minister Mohamed Maait said that under the new law several tax and non-tax incentives would be provided to support SMEs, such as land allocations, tax exemptions, and assistance with marketing.

He said the new law covered tax incentives such as waivers from stamp duty and fees for registering documents. It also covered taxes and fees required for the registration of land on which SMEs would be set up, in addition to the exemption of capital gains earned from selling assets and production equipment from taxes if proceeds are spent on new assets and machinery within a year. The law also facilitates applications for low-cost financing.

The ministry had adopted the incentives proposed by the Egyptian Competition Authority (ECA) in the new SMEs law, said Alia Al-Mahdi, a professor of economics at Cairo University. Al-Mahdi participated in the ECA preparations to integrate the SMEs sector into the formal economy.

The ministry said the new law offered a simplified taxing system for SMEs that reduced tax burdens and facilitated procedures. According to the system, tax on projects that range in value from LE2 million to LE3 million will be 1.25 per cent, whereas tax on projects valued at between LE1 million and LE2 million will be 0.75 per cent.

Such projects are not expected to increase the taxes the state collects, said Al-Mahdi, adding that this was not the main reason why the state was working to integrate the SMEs sector into the formal economy, where it hoped they would make a larger contribution.

The draft law stipulates that projects whose turnover is less than LE250,000 annually will pay LE1,000 in yearly taxes, projects ranging between LE250,000 and LE500,000 will pay LE2,500, and projects of between LE500,000 and LE1 million will pay LE6,000 on an annual basis.

The Egyptian Tax Authority (ETA) conducts a survey on the size of projects every five years and calculates taxes accordingly. The taxes are paid over the following five years, a ministry statement said.

A project owner may request the ETA to pay due taxes under the income tax system if it records losses or if it is going to pay more taxes under the simplified tax system for SMEs. If the project owner decides to be taxed on income, he cannot switch back to the simplified system before five years had elapsed, the statement said.

The Ministry of Finance explained that the draft law allowed micro-businesses and SMEs operating in the informal sector without a licence to adjust their status by obtaining a temporary licence for a period not exceeding three years. The prime minister has the authority to extend such licences, the aim being to protect project owners from being served for violations.

“Taxes are not incurred on projects in the informal sector that have applied for a temporary licence to adjust their status for the years prior to the date of the submission of the application,” the ministry said.

Head of the Egyptian SMEs Federation Alaa Al-Saqti said the tax exemptions were already included in the current investment law. What was new in the SMEs law were the customs exemptions on project equipment and the cancellation of stamp duty, he said.

The problem of integrating small businesses into the formal sector was not limited to tax exemptions, he added. Eighty per cent of the problem was related to procedures, since owners often did not know the procedures required or have adequate knowledge of the demands of the market to develop and enlarge their businesses, Al-Saqti stated.

It could be difficult for owners to find locations for their businesses because of their high cost, with the state offering spaces for as much as LE7,000 to LE8,000 per square metre. Al-Saqti said it should provide spaces for projects at lower prices or in instalments instead.

The Ministry of Investment and International Cooperation, together with the General Authority for Investment (GAFI) and the Micro, Small and Medium Enterprise Development Agency, some days ago offered 107 industrial units fully finished with amenities in the industrial zone of Mit Ghamr City.

The size of the units, complete with electricity, water and sewage services, ranged from 144 square metres to 576 square metres.

*A version of this article appears in print in the 19 September, 2019 edition of Al-Ahram Weekly

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