Subsidy cuts and tax amendments in Egypt's near future: Ministers

Ahram Online, Monday 30 Sep 2013

Egypt's interim government intends to cut fuel subsidies, amend taxes before it leaves office, officials say

Interim Finance Minister, Ahmed Galal
Interim Finance Minister, Ahmed Galal (Photo: Ahram)

Egypt's government is gearing up to revise the structure of state expenditure, as well as many revenue sources, state ministers announced during the opening session of the 9th money and finance conference in Cairo on Monday. 

"The Ministry of Petroleum is currently preparing a program to gradually reduce energy subsidies in the coming years," finance minister Ahmed Galal told the audience, which included economic experts and many executives from Egypt's business community.

Galal insisted that this reduction – seen as a politically risky move given its likely unpopularity – will begin before the end of the interim period and not after elections, as has been reported in media. 

Egypt's transitional period is expected to conclude with parliamentary or presidential elections by next spring, according to the political roadmap set by the country's armed forces following the ouster of Islamist president Mohamed Morsi in July.

"As it is, 80 percent of energy subsidies do not benefit those in need," explained Galal, who added that state fuel subsidies had reached between LE128 and 130 billion annually.

"This is double the spending on education and four times the spending in health," he stressed, calling for a re-structuring of government spending to correct this imbalance, although without offering further detail.

On the revenue side, the government announced during the conference that it will make amendments to Egypt's tax regimen.

Egypt's transitional government aims to reduce the budget deficit from 14 percent to between 9.5 and 10 percent, while lifting the growth rate to 3.5 percent from some 2.2 percent currently. 

The stamp tax on stock market transactions passed last April will either be revised or cancelled, said investment minister Osama Saleh.

The 0.001 percent stamp tax, imposed on both buyers and sellers equally, had been passed by Egypt's Shura Council in an effort to "help curb speculative trading and encourage medium and long term investment,"  in the words of Abdallah Shehata, adviser to the minister of finance at the time, but had been met with criticism from investors and bourse officials. 

Saleh himself said earlier that the tax had a negative impact on investments.

"I do not believe in taxing transactions, but rather income," Galal also declared in a previous media interview.

The administrative court is examining an appeal to cancel the stamp tax on stock market transactions, claiming it is unconstitutional. 

Galal also revealed that the government will not implement a previously-announced revision to the income tax, at least in the foreseeable future.

In May 2013, the Shura Council ratified amendments to the Income Tax Law No.91 of 2005, which involved taxing a new top income bracket at a rate of 25 percent in an attempt to balance income distribution.

However, Galal reiterated the government's intention to replace sales taxes with a Value Added Tax (VAT) and said plans are being drawn up for the most optimal implementation of Egypt's new property tax. 

Past regimes – including that of Hosni Mubarak, the military ruling council, and Mohamed Morsi – had all failed to meet their own deadlines for the introduction of the property tax and the VAT. 

The 9th money and finance conference is hosted by Al Mal's Global Trading Matters (GTM), a private-sector think tank with a mission to increase private-sector participation in critical social, economic, political and environmental issues in Egypt, according to the GTM official website.

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