As part of government efforts to mitigate the impacts of inflation and rising prices on society, President Abdel-Fattah Al-Sisi has issued a directive to raise the annual income-tax exemption level to LE36,000 from LE24,000.
The decision, which follows on the heels of the presidential directive to raise the minimum wage by LE1,000, was announced after a meeting between President Al-Sisi, Prime Minister Mustafa Madbouli, and Minister of Finance Mohamed Maait to discuss the 2022-23 budget.
Tax exemptions, which are measures to free individuals or organisations from tax obligations, generally target individuals with limited incomes or organisations that the government wants to encourage, such as charities. The tax-exemption threshold refers to the amount of an individual’s annual earnings that is exempt from taxes.
The directive to raise the minimum taxable income level by LE12,000 is intended to support limited-income sectors of society, said advisor to the head of the Tax Authority Ragab Mahrous. “It will alleviate the burdens of the repercussions of the global economic crisis on employees and tradespeople,” he said.
The tax exemption is calculated based on the monthly salary for employees and on the basis of income for the owners of commercial activities. The higher threshold will go into effect as of April for salaried employees and as of 31 December 2023 for commercial activities.
The increase also follows on the heels of a recent decision to raise exempted personal tax allowances. These were originally set at LE9,000 for all, but they were recently increased, along with the increase in salaries, to LE15,000.
Above these personal exemptions, individuals and businesses also enjoyed another tax-free allowance of LE15,000. This week’s decision involves increasing that to LE21,000. The exempted personal allowance, together with the income-tax exemptions, add up to LE36,000.
“Above this, tax rates are graduated according to set brackets, starting at 2.5 per cent, then climbing to 10 per cent, 15 per cent, 20 per cent and 22.5 per cent of annual income,” Mahrous said.
A directive of this sort passes through several stages before being applied, he added. First, it is studied by the Ministry of Finance and the cabinet, and then it is presented to the House of Representatives, the lower house of Egypt’s parliament, which introduces appropriate amendments to the tax laws. Then actions are taken to implement the directive on the ground.
Yehia Abu Taleb, a professor of finance at Ain Shams University in Cairo, said that raising the minimum tax level from LE24,000 to LE36,000 meant that people whose annual income fell below LE36,000 were not obliged to pay taxes.
However, “if someone earns LE100,000 a year, for example, the first LE36,000 would be deducted and they would be taxed on the remaining LE64,000,” he said.
Stressing that this would ease the pressures on taxpayers, Abu Taleb said that the new regulation also applied to individual business owners and not just to salaried workers. “For example, if three people are partners in a company and make an annual profit of LE108,000, that profit is divided between them. That means they would all be exempted from income tax that year because they did not exceed the tax exemption limit of LE36,000.”
All government employees who receive a basic salary of LE3,000 a month, not including allowances and bonuses, will be exempt from taxes, Abu Taleb said. However, an employee who earns a salary of LE6,000 a month will have an annual income of LE72,000 and therefore will be obliged to pay taxes on the amount that exceeds the LE36,000 threshold.
According to the new scale for salaried employees that will go into effect as of 1 April 2023, an annual income that falls below LE36,000 will be tax exempt. Above this, an annual income of LE36,000 to LE45,000 will be taxed at 10 per cent; LE60,000 to LE200,000 will be taxed at 20 per cent; LE215,000 to LE415,000 will be taxed at 22.5 per cent; and a rate of 25 per cent will be applied to incomes above LE415,000.
Annual incomes above LE800,000 will be taxed 27.5 per cent.
The annual income-tax deduction is separate from the amounts that are deducted from employees’ salaries for social insurance. In order to calculate net income, an employee needs to deduct the amount he owes in annual income tax according to the scale above plus the amounts deducted by the Social Insurance and Pensions Authority.
* A version of this article appears in print in the 23 March, 2023 edition of Al-Ahram Weekly