Better budgeting begins

Nahla Abul-Ezz, Wednesday 20 Oct 2021

Egypt’s Unified Finance Law, now set for discussion by the House of Representatives, aims to correlate government spending better with performance

The Planning and Budget Committee of the House of Representatives, the lower chamber of Egypt’s parliament, completed discussion of the country’s new Unified Finance Law (UFL) this week in preparation for debating it in general session.

The law is meant to link government spending more closely to performance as one of the means to regulate public spending and consolidate accountability. The UFL aims to raise transparency during the preparation, implementation, and monitoring of the budget and respond to changes related to electronic spending and collection.

It will also facilitate the use of electronic signatures and the integration of laws on the state budget and government accountability into the new law. It reflects the government’s determination to modernise expenditure and accounting.

The new law grants the Ministry of Finance the right to approve or reject laws that entail additional financial obligations. The ministry will also be able to propose public financial policies and follow up on their implementation as part of the country’s national strategy for sustainable development and the goals of economic and social development.

It clarifies the role of the Ministry of Planning in pinpointing strategic goals in each sector in coordination with the ministries concerned and independent entities. These goals will be presented to the cabinet for approval, according to rules stated in the general planning law.

Regulating the financial system is the primary target of the new law. This cannot be achieved except by merging Law 53/1973 on the state general budget and Law 127/1981 on government accountability, however, especially in the light of the ongoing digital transformation.

The law is also meant to raise the skills of employees in the financial departments of ministries and administrative bodies in order to enable them to keep up with various technological advances.

While the new law is making its way through parliament, experts offered suggestions on how to improve revenue collection at a virtual workshop organised by the Egyptian Centre for Economic Studies (ECES).

Amr Al-Mounayer, a former deputy to the finance minister for tax policies, told participants that the Egyptian Tax Authority (ETA) has not announced revenues from taxes for the 2020-21 fiscal year, fearing that revenues are less than targeted.

He had earlier called for a review of the targeted sum due to the coronavirus pandemic that has affected all state sectors.

Egypt expects to collect tax revenues to the tune of LE830 billion, or around 14 per cent less than the target for 2021-22.

Al-Mounayer also called for a commitment to constitutional aims to increase spending on education and healthcare by 10 per cent annually.

“Tax exemptions on education and healthcare services should be calculated fairly. Many countries impose a value-added tax [VAT] on these services but provide the same sum to the two sectors’ allocations. It is no longer viable to assume that educational institutions should be non-profit amid the increasing number of private institutions in the education and healthcare sectors,” he said.

Taxes slated for collection should have amounted to 18 per cent of GDP in the 2021-22 budget. However, at present the figure stands at 14 per cent, he said.

“In some countries, social insurance premiums are regarded as part of public revenues, raising the ratio of revenue to GDP,” he pointed out.

The International Monetary Fund (IMF) has said that Egypt can increase the ratio of tax to GDP by three or four per cent, Al-Mounayer said, something which would positively reflect on the deficit and financial balances.

He proposed the establishment of a new Higher Council for Tax Policy that would be independent from the state’s tax authority and speed up the process of issuing e-bills for small and medium-sized enterprises (SMEs). Larger entities have been enrolled in the system of e-bills already.

Al-Mounayer also suggested reducing the secrecy of bank accounts, as other countries have been doing, to enable the ETA to gain information on the financial situations of taxpayers.

Regarding the Egyptian Stock Exchange, he said that foreign investors should be subject to capital gains tax instead of simply the stamp duty.

According to the new law, the state budget is prepared and implemented in line with the objectives of state economic and social development plans and strategic goals and evaluated according to international standards in this regard, he added.

Economic expert Hani Tawfik said that the budget should have an economic, as well as a financial, role, explaining that the absence of a ministry of the economy had put the burden of drafting it on the Finance Ministry.

The law carries over financial allocations to following years if they are not spent during the year in which they are accredited and includes regulations to help reduce the budget deficit, Tawfik said.

In addition, it contains rules to ensure wise financial planning and plans for the future financial performance of administrative bodies, he added.

*A version of this article appears in print in the 21 October, 2021 edition of Al-Ahram Weekly

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