A simplified and integrated tax-filing system designed for businesses with annual revenues not exceeding LE15 million and benefiting small and micro enterprises, entrepreneurs, freelancers, and professionals is being introduced by the Finance Ministry.

The announcement was made at a press conference last week by Finance Minister Ahmed Kouchok. The initiative also aims to promote the transition of businesses in the informal economy into the formal economy. Small and medium-sized enterprises (SMEs) will not be audited for past compliance, Kouchok said, adding that “our goal is the future.”

In addition to simplifying procedures for filing tax returns, the package of measures includes an expansion of the sample-based audit system across all tax centres and the implementation of a risk-management approach to audits.

Sample-based auditing involves assessing a business’s tax liability based on a representative sample of returns for similar activities, thereby facilitating the identification of possible anomalies.

Risk-management in tax auditing focuses on the potential risks facing a company operating in a particular sector that could affect the company’s performance and tax compliance. The measures combined are intended to streamline the auditing process.

The new regulations have also introduced a cap on late fees of no more than the original amount of the tax obligation. Kouchok noted that in the past such fees could sometimes come to many times the amount of tax originally owed. He also pledged to expedite the resolution of tax disputes, of which there is a backlog amounting to LE380 billion.

The threshold at which international firms operating in Egypt are required to submit a transfer-pricing study has been raised to LE30 million. This is a mechanism applied globally to the operations of multinational firms in order to ensure that the prices of their transactions reflect general market rates and that the parent company and its subsidiary are not encumbered with more than their fair share of taxes.

Kouchok said that the government will also introduce a centralised settlement mechanism for investors and simplify the value-added tax (VAT) refund process. Such measures “reaffirm our determination to minimise the tax burden on investors,” he said. “They also contribute to fostering a competitive and business friendly environment for the investment community, thereby advancing the Government’s drive to maximise production and export capacities.”

He stressed that the government would “invest heavily in the capacity of Egyptian Tax Authority (ETA) personnel, improving their conditions in keeping with their responsibilities. We are introducing a modern and comprehensive system to evaluate performance and the quality of services offered to taxpayers.”

According to Deputy Finance Minister Sherif Al-Kilani, the tax non-compliance rate in Egypt is as high as 50 per cent, which was partly why it was necessary to issue a package of new incentives aiming to integrate the informal sector into the formal economy.

Accomplishing this will mean greater justice in the tax community, he told Al-Ahram Weekly.

The ETA has been able to benefit from digital transformation to identify and track risks of tax evasion across economic activities and geographical areas. Al-Kilani said that now that the system has been automated, employees are receiving the appropriate training and reduced human intervention will enhance efficiency.

The package unveiled by the Ministry of Finance is only “the first phase of reforms and the incentive package,” Al-Kilani said, stressing that the government “is listening to complaints and taking immediate action to remedy flaws and make improvements.”

He predicted that business owners will find the new tax-filing system easy to manage and that it will not strain them financially. The automated system will save them time and paperwork and will also put an end to haphazard estimates, random auditing, and uncertainty and lack of clarity in tax matters.

Enterprises with revenues less than LE15 million will benefit from another time-saving simplification in that they will be taxed based on a fixed percentage of their turnover.

Mohamed Al-Bahi, a member of the Board of Directors of the Federation of Egyptian Industries and Chairman of the Tax and Customs Committee, anticipates a positive response from taxpayers to the new measures.

Describing the incentives package as a “course correction”, he said it had come “in response to demands from the business community”.

The executive measures to implement the package should be forthcoming soon, he said, anticipating the speedy amendment of laws relevant to settling outstanding disputes over taxes and arrears.

“The incentives are not new exemptions,” he added.

The taxation incentive package “marks the beginning of a true partnership between the Tax Authority and taxpayers,” Ashraf Abdel-Ghani, president of the Association of Tax Experts, told the Weekly. This partnership is based on three main pillars: legislative stability, tax certainty, and ease and clarity of procedures, he added.

He pointed out that Egypt has 3.4 million micro-enterprises and 217,000 small enterprises. About half of these are outside the formal economy. “This system will encourage many of them to join the formal system,” he said.

The new measures also address investors, Abdel-Ghani said, informing them that a clearing system will be in place in October, facilitating the provision of services and enabling the Government to undertake its financial commitments more efficiently.

Rasha Abdel-Aal, head of the ETA, will be overseeing the implementation of what she described as a “large, new, and comprehensive package offering many tax facilities”. These “cover all tax resources, activities, and taxpayers, regardless of the size of their businesses, and they are tailored to each activity.”

Although the package entails several action areas and innumerable details, the government decided to present it as a whole. “Over the next four weeks, different categories of tax-facilitation measures will be discussed in detail each week,” Abdel-Aal said.

“This will allow for the necessary community dialogue, enabling feedback from taxpayers and the business community, so that we can reach a final vision satisfactory to all. Once all the details of the facilitation package are finalised, we will announce the tax policy strategy, which includes the tax roadmap until 2030.”

This is in line with one of the ETA’s goals, which “is to strengthen communication with the business community,” she concluded.

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* A version of this article appears in print in the 19 September, 2024 edition of Al-Ahram Weekly