Egypt's tax dispute with Orascom remains ongoing: ETA

Bassem Abo Alabass, Tuesday 8 Apr 2014

Head of Egypt's Tax Authority Mostafa Abdel-Kader speaks of the dispute with Sawiris' Orascom and the potential 5% tax increase on individuals and entities whose net annual income exceeds LE1 million

Egypt’s Tax Authority Head Mostafa Abdel-Kader (Photo: Al-Ahram)

Egypt’s Tax Authority (ETA) has not dropped its case against Orascom Construction Industries regarding the latter's tax evasion, said authority head Mostafa Abdel-Kader on Monday.

Abdel-Kader stated at a press conference that the tax evasion dispute with OCI, the Egyptian branch of Dutch company OCI NV, remains ongoing, as the company failed to honour its agreement with the ETA stipulating it pay LE7 billion ($1 billion) of tax arrears on 10 instalments between 2013 to 2017.

“ETA makes sure of its claims. OCI still owes us taxes,” Abdel-Kader commented.

In March, OCI NV had announced in a statement that the Egyptian prosecutor-general on 18 February "fully exonerated Orascom Construction Industries, the company’s Egyptian subsidiary, of any wrongdoing and all charges of tax evasion."

The spark of the controversial dispute between the Egyptian government and the Sawiris family, who own OCI, was ignited during a speech by ousted president Mohamed Morsi in October 2012, where he alleged that Orascom had evaded LE14 billion ($2 billion) in taxes.

The accusation was made over the acquisition of Orascom's subsidiary Orascom Building Materials Holding (OBMH) by cement giant Lafarge for $12 billion.

Additional income tax to be imposed

Abdel-Kader went on to point out that the newly proposed 5 percent income tax increase on individual and corporate taxpayers whose annual net income exceeds LE 1 million ($0.14 million), is yet to be referred to the Cabinet.

In March, Finance Minister Hany Kadry announced the aforementioned tax rise would be applied for a three-year period to address 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.

“[The 5 percent tax increase] is expected to receive the green light by the next fiscal year 2014/15 and it will pour around LE3.5 billion annually ($0.5 billion) on the public coffers,” Abdel-Kader estimated.

He revealed that these taxpayers would be able to pay their taxes in projects of public benefit, such as schools and hospitals.

Currently, those earning above LE250,000 ($35.8 thousand) yearly are taxed at a rate of 25 percent.

Corporate tax

In response to claims that state-run bodies pay far higher income taxes that private sector entities, Abdel-Kader said the difference was not enormous as taxes on sovereign authorities, such as the petroleum and Suez Canal authorities, register around LE115 billion ($16.4), while private entities are levied by LE81 billion ($11.6 billion).

Tax arrears

Abdel-Kader told attendees that the total tax arrears of the current fiscal year 2013/14 stand at LE74 billion ($10.6 billion), compared to LE69 billion ($9.8 billion) the previous year.

Around LE60.3 billion ($8.6 billion) out of the total arrears are under dispute between the ETA and taxpayers.

The ETA aims to collect LE17 billion ($2.4 billion) from the arrears by next June, so far succeeding to collect LE10 billion ($1.4 billion). 

The finance ministry’s latest bulletin showed that the total taxes revenues recorded LE148.7 billion ($21.3 billion) between July and February 2013/14 against LE136.8 billion ($19.6 billion) during the same period of 2012/13.

The government expects total taxes returns of LE300 billion ($43 billion) by the end of the current fiscal year in June.

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