The Egyptian Tax Authority (ETA) has undergone major changes over the past few years, among them digitisation and the introduction of the electronic invoicing and receipt system.
Another challenge has been to change the mentality of people used to dealing in person with tax officials and paperwork and to familiarise them with online transactions. Implementing the changes has necessitated a major overhaul of the ETA’s infrastructure and staff structure.
The global economic impacts of the Covid-19 pandemic and then the war in Ukraine have compounded the pressures on the ETA, which accounts for about 75 per cent of the state’s revenues.
Fayez Al-Dabaani, who took over as the new head of the ETA just over a month ago, spoke to Al-Ahram Weekly about how the authority has managed the challenges.
His predecessors initiated various positive developments that he has followed through on, such as the ETA’s contribution to the drive to stimulate higher foreign and domestic investment by streamlining bureaucracy.
The ETA has created three large and medium taxpayers tax centres in Alexandria and Hurghada, and it has merged Cairo’s first and second tax departments, completing the merger of seven offices located in Cairo, Giza, and the Canal Zone, with plans to merge four more at the Greater Cairo level.
This involves bringing income tax and VAT processing into one office, storing taxpayer information in a single place, and uniting staff, who will include specialised tax officers trained in reviewing tax returns.
Completing the transition to digitisation is also complex and means comparing written with digital files, double checking these with online invoices and receipts, and then conducting field inspections to sort out any irregularities or discrepancies in the information.
The system will help to minimise tax evasion, with violators subject to the legally stipulated penalties that can include jail.
The ETA is one of the main economic pillars of the state, Al-Dabaani said, adding that Minister of Finance Mohamed Maait faced resistance following the 2019 decision to introduce the new electronic declaration system.
Taxpayers feared that the process would be complicated and were worried by the inability to communicate in person with officials at the ETA. However, once the system was applied, it proved very successful, and within its first years the ETA received three million tax returns in digital form.
Al-Dabaani said that once the system is fully operational and all taxpayers are registered online, the ETA will no longer require them to file because their information will already be stored with the ETA.
One common concern has been that the government intends to introduce new taxes to meet its target for the next fiscal year. But according to Al-Dabaani, this is out of the question. The general budget set a target of LE1.5 trillion in tax revenues for the 2023-2024 fiscal year, while the total estimated revenues for the fiscal year that has just ended are expected to come in to LE1.2 trillion.
To reach the target, the ETA must do more to broaden the tax base and close off avenues to evasion. Al-Dabaani noted that the current tax law, which came into force in 1991, lowered corporate taxes from 40 to 20 per cent, made the submission of a tax return voluntary, and abolished arbitrary assessments.
The purpose was to generate more revenues and increase trust between taxpayers and the ETA.
Nevertheless, the ETA still needs to find new sources of tax revenues, and for this reason it has become more vigorous in applying the law regarding rental incomes. Real-estate owners must report their income from rented properties on their annual tax returns.
The rent for some properties in the North Coast can be LE30,000 a day, Al-Dabaani noted. The law on taxing this income, not new, exempts half the value of the rent and calculates the tax owed on the other half.
Real estate, whether commercial or residential, can only be taxed as income if it generates revenues. If it is rented out, the owner will be taxed on revenues from the rent. If the owner decides to sell the property, he will be required to pay a 2.5 per cent tax on the value of the sale.
The value of the rent can be ascertained from owners’ associations in some areas, such as the North Coast, Al-Dabaani said. While the real estate tax levied on properties is a form of wealth tax, rental or sale income is treated as income tax, so there is no risk of double taxation.
Should a taxpayer fail to report rental revenues, he could be prosecuted for tax evasion.
The ETA follows established procedures to ensure tax compliance, just as it complies with legally stipulated provisions regarding exemptions. It is conducting campaigns in the North Coast region to raise awareness on the need to report residential units that are being rented out and on which tax is due.
According to Al-Dabaani, more that 151 million e-receipts, or an average of more than 17 million a month, have been filed in the electronic system since it went into operation.
An e-receipt is a way to digitise transactions that do not involve invoicing clients. A medical practitioner would not normally invoice a patient and instead would issue an e-receipt in exchange for payment, for example. If the practitioner performs services for an organisation, he would issue an e-invoice for charges.
To date, 420,320 taxpayers are registered on the e-invoicing system, and the total number of invoices they have issued exceeds 686 million.
The new e-invoicing system is a useful tool for protecting consumers end eliminating fake companies. But some types of tax evasion are harder to check.
An example is the so-called tutoring centres. In 2009, the ETA department specialising in the liberal professions began to track the activities of these centres, warning them that if they did not register, they would be charged with tax evasion.
As it is difficult to ascertain how much money teachers in such centres charge, the ETA has generally accepted self-reporting.
In 2022, the ETA found that the owners of YouTube channels and the like could earn sizeable sums that had remained unreported. It set up a special unit to track online content creation, and hundreds of content creators, such as YouTubers and bloggers, are now registered with the authority and have opened accounts on the online system.
They will also be required to submit monthly VAT returns if their earnings exceed LE500,000.
The ETA hopes to earn LE500 million in tax revenues from online content creation this year and to gradually increase revenues annually. VAT began to be applied to Google services in Egypt at a rate of 14 per cent on 1 July this year.
This situation is different from collecting income taxes from companies such as Google and Amazon. They are subject to taxation under international agreements, and the G20 group of countries is working on mechanisms to tax them that will then be applied to all state parties.
Any revenues gained from a profession or activity are taxable in Egypt, regardless of whether the revenues are earned abroad, as long as Egypt is the base for practising the profession or activity concerned, Al-Dabaani said.
Everyone must comply with the provisions of the tax laws, the most important of which is to register with the ETA and then submit returns on the stipulated dates. Any changes, such as cessation of activities, change of premises, or the death or departure of a partner, must be reported to the ETA.
* A version of this article appears in print in the 27 July, 2023 edition of Al-Ahram Weekly