Tax hike on rich, minimum wage expansion in Egypt's near future: Finance minister

Deya Abaza, Wednesday 12 Mar 2014

Individual taxpayers earning more than LE1 million per year may be subjected to a 5 percent tax hike over a three year period, while public business sector workers to be covered by minimum wage

Egypt's Wealthiest: From left to right, Nassef Sawiris, Mohamed Mansour and Naguib Sawiris

Egypt's government is currently studying the implementation of an income tax increase of 5 percent, to be applied for a period of three years on individual taxpayers whose annual income exceeds LE 1 million, newly appointed finance minister Hany Kadry Demian announced on Wednesday.

The exceptional measure is designed to answer calls for social justice raised during Egypt's 2011 revolution – which brought down the regime of long-time autocrat Hosni Mubarak – as well as alleviate the financial imbalances exacerbated by three years of economic turmoil, said Demian, whose comments on Wednesday were delivered at his first press conference since taking up his post following a ministerial reshuffle last month.

Currently, those earning above LE250,000 a year are taxed at a rate of 25 percent.

A Value Added Tax (VAT) previously announced by the last government is also still in the pipeline, affirmed Demian.

The VAT will be fixed at a unified rate between 10 to 12 percent and will be imposed on all goods and services, with the exception of a few items such as subsidised food stuffs like oil and wheat.

The VAT bill was due to be finalised by the end of January.

As for the long-awaited amendment of the property tax, the finance minister said it was being subjected to final adjustments so that the tax brackets, rather than the tax rate, will be revised every five years. 

Demian reiterated the previous cabinet's commitment to gradually repeal state-subsidies for fuel, which accounts for around a fifth of budget expenditure, before the end of its mandate in 2014.

"Egyptian society is now convinced that the subsidies are unfair," said Demian, referring to the wastefulness of the antiquated system.

Instead, the minister favours cash subsidies targeting the financially needy, for which "we do have a database," estimating that the margin of error was between 5 and 7 percent.

The previous cabinet under former prime minister Hazem El-Beblawi had begun outlining a conditional cash transfer program, targeting 2 to 3 million families nationwide, for implementation within the next three to four years.

The minister stressed that the removal of the subsidies would be carried out in a manner that would "protect the middle-class," with an emphasis on replacing fossil fuels with renewable energy in an initiative which would be spearheaded by state-institutions, namely the finance ministry itself.

When asked about minimum wage and the disparities in its implementation across the public sector, Demian affirmed that the large majority of public sector companies and financial authorities already paid a minimum wage of LE1,200 ($172) to their workers, but that the government had allocated LE100 to 105 million to support those who were financially unable to comply with the new wage.

Around 1.5 million employees of nine holding companies and 50 economic authorities make up the "public business sector" entities, which are not legally included in the state-budget, despite being state-owned.

Various segments of Egypt's public sector have been hit by strikes since it was announced in January that the new minimum wage would apply to some 4.2 million administrative personnel and not their counterparts in the public business sector.

The largest strike was staged last month at the Mahalla Textile Company, Egypt's largest in the public-sector, with around 20,000 workers participating. Other companies, including Tanta Flax and Shebeen Weaving, have also been striking to demand the minimum wage of LE1,200.

Demian added that LE1.6 billion has already been allocated to apply the minimum wage to Egypt's 'special funds' whose coffers cannot cover the additional costs.

Revenues raised by state institutions through means other than customs or taxes, such as hospital fees or parking tickets, are managed by special funds which are used to pay employees directly.

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