Egyptian lawmakers passed a package of tax reforms on Monday including a new tax on entertainment, hikes in government fees, and an increase in the threshold for taxable personal income.
The approved reforms include a five to 20 per cent charge on entrance tickets to theatres, cinemas, parks, clubs, and other entertainment venues, a new tax on items purchased from duty-free shops, and a 10 per cent tax on luxury goods such as caviar, shrimps, alcoholic beverages, chocolate, and roasted coffee.
The parliament also approved changes to the income tax law, increasing exemptions from personal income tax from LE24,000 per year to LE36,000. The move is said to benefit around 22 million low and middle-income employees.
The new tax bill comes 18 months after parliament had rejected a previous bill the government had submitted in 2021. The earlier bill provided for a “development fee” of two per cent on durable goods and five per cent on domestically produced and imported soft drinks. The new one includes neither of these.
In view of the current domestic and international economic circumstances, the government needs to increase its resources, and raising tax revenues is one way to do this, said Matta Bishai, a member of the Board of the Division of Importers at the Federation of Chambers of Commerce.
He said that the tax hikes on certain consumer goods would not have a significant impact on the consumption of these goods, since customers are generally not among the limited-income sectors.
There is not a large demand for wine, caviar, salmon or Roquefort cheese in the Egyptian market, so the luxury taxes would not be “provocative”, contrary to what would be the case if they affected fish, chicken, or other foods most consumers rely on.
Mohamed Hassan, managing director and CEO of Blom Egypt Investments, said the newly adopted tax bill could spur a slight increase in inflation. When the prices of some goods go up, so do the prices of many others, he said.
He stressed that any rise in the inflation rate would not be particularly significant because the base rate during the year was already high, so the change would not be palpable.
In televised remarks, Minister of Finance Mohamed Maait said that the tax increases would not have an inflationary effect.
Hassan Fawzi, head of the Coffee Division at the Federation of Chambers of Commerce, said that the new luxury tax on coffee would affect roasted coffee imported from abroad. Usually, coffee beans are imported raw and the roasting is performed domestically, he said, so the tax would only affect varieties used in espresso machines and the like, as opposed to the Turkish coffee that most people drink.
According to the report drafted by parliament’s Planning and Budget Committee, the bill comes in the framework of government efforts to develop public revenues in a manner that contributes to ensuring that funds are available to meet the demands of the expenditure side of government budgets, enabling agencies to accomplish their intended functions and goals.
This had necessitated a review of the current tax laws and the introduction of a number of amendments in order to increase public revenues.
Government planners expect a 27.1 per cent growth in tax revenues over the current 2022-2023 fiscal year, bringing tax revenues up to LE1.530 trillion in the 2023-24 fiscal year, which begins in July. Their projections are based on structural reforms to the tax system as well as the fact that the economy has begun to recover from external shocks.
Assistant Dean of the Computer Science Faculty at Shorouk Academy Nabil Abdel-Raouf, also a professor of accounting and taxation, said that the recently approved tax measures would help to curb inflation and increase the state’s revenues.
They would bring in an estimated LE5 billion in revenues that could be used for subsidising foodstuffs or fuel and funding social welfare schemes, he said.
Under the amendments, individuals with an annual income of over LE1 million will be subject to a 27.5 per cent tax. This is a new tax bracket that should generate over LE4 billion a year, according to Maait. Previously the highest income tax bracket was 25 per cent.
Abdel-Raouf said that this would also help to finance the new rise in the income tax exemption threshold to LE36,000, which aims to ease the strains on lower-income brackets.
Taxes on industrial and commercial profits remain unchanged at 22.5 per cent. Hassan said that the largest increases in the tax revenues that the government accrues from businesses will come not from the newly passed law but as a result of the implementation of the new electronic invoicing system that will help to integrate the informal economy into the formal economy.
The informal economy accounts for a huge portion of economic activity in Egypt.
The newly approved tax measures come shortly after the first meeting of the newly restructured Supreme Council for Investment chaired by President Abdel-Fattah Al-Sisi that has announced plans to accelerate the drafting of a proposed national tax policy strategy for the next five years.
The aim is to eliminate bureaucratic overlap between the agencies authorised to impose and collect taxes and to create a more stable tax-related legislative environment.
According to statements by Prime Minister Mustafa Madbouli, the finance minister has engaged an internationally reputed consultancy firm to draw up a tax policy white paper that will be unveiled within the next three months.
* A version of this article appears in print in the 1 June, 2023 edition of Al-Ahram Weekly