Tax questions

Gamal Essam El-Din , Tuesday 14 Dec 2021

After approving amendments to the value-added tax, the House of Representatives postponed discussions on hikes of other duties and development fees.

Tax questions
Tax questions

Egypt’s House of Representatives decided to delay the debate on three laws imposing sweeping tax hikes on a number of goods and services.

The postponed amendments entailed three laws regulating the stamp tax (111/1980), the entertainment tax (74/1999), and the development fee (147/1984).

A large number of MPs warned that the new tax hikes and fees will financially burden citizens at a time they are still reeling from the coronavirus.

Atef Nasser, the spokesperson of the parliamentary majority of Mostaqbal Watan Party, proposed that preliminary approval of the new tax and fee hikes be postponed and that the amendments receive serious study first before they are put up for discussion before the House again.

Chairman of the House’s Budget Committee Fakhri Al-Fiqi said in the discussion of the new tax and fee hikes yesterday that the committee declined to vote yes or no on the amendments. “We said the vote in parliament will decide whether they would be approved or not,” Al-Fiqi said.

As a result, Parliament Speaker Hanafi Gibali decided not to put the amendments up for a preliminary vote on Tuesday. Gibali said the House’s new plenary sessions will be held on 26 December.

The postponement came after many MPs, including those of the majority, attacked the amendments, agreeing that they could do more harm than good to poor and average-income citizens. Mahmoud Badr, a majority MP, said the amendments show that the government lacks “political sense as it imposes new tax and fee hikes on citizens at a time they are suffering from the impact of the coronavirus.”

Badr said the new tax and fee hikes are “surprising and shocking” because the minister of finance, he added, said 10 days ago that the government does not intend to impose any new taxes.

A report by the House’s Budget Committee indicated that a development fee for exiting the country at airports will be increased from LE50 to LE100, with the exception of foreigners visiting the tourist governorates of the Red Sea, South Sinai, Luxor, Aswan, and Marsa Matrouh. Bus and truck drivers regularly transporting passengers and goods across Egypt’s borders will be exempted from the fee.

The report also indicated that a fee will be imposed on all items purchased from duty free shops, equivalent to three per cent of the item’s value with a $1.5 minimum.

The report said a three per cent fee ($1.5 minimum) will also be imposed on alcoholic beverages purchased from duty-free shops. Every additional bottle for personal use will be charged a higher 10 per cent fee ($12 minimum).

Members of the foreign diplomatic and consular workers are exempted.

The report indicated that all kinds of finished durable goods will be subject to a two per cent development fee. Minister of Finance Mohamed Maait is expected to issue a decree showing a list of these goods.

“Locally produced and imported soft drinks will also be subject to a development fee equivalent of five per cent of their value, with a LE0.25 minimum. A statement including a list of the names of these drinks will be issued by the minister of finance,” the report said, indicating that “the Egyptian Tax Authority will be responsible for collecting fees imposed on locally produced soft drinks, and that the Customs Authority will collect the fees on imported soft drinks.”

Other legislative amendments aim to impose an entertainment tax (74/1999) on patrons of casinos, theatres (including the Opera House), cinemas, and sporting clubs.

The new amendments also show that a stamp tax on most insurance premiums would be raised by one per cent.

Maait defended the proposed tax and fee hikes, insisting that most of the goods and services covered by these hikes are “luxury items that are not used by the average income class.”

Meanwhile, parliament on Tuesday approved amendments to the value-added tax (67/2016) to exempt a number of industrial and investment activities from the VAT tax. Articles 6 and 7 of the law state that special economic zones exporting goods and services will be exempted from the VAT to encourage investment in such zones.

Maait told MPs on Tuesday that the amendments to the VAT law aim to stimulate the national economy, relieve tax burdens on vital businesses like the detergents industry, and raise the competitive edge of the Suez Canal Authority and its role in international trade. “In general, the amendments aim to relieve local Egyptian industries from many burdens, particularly the VAT, in order to be able to export and secure a surplus,” Maait said.

On Tuesday parliament also approved the amendment of Article 17 of the VAT law which aims to impose a value-added tax on online trade. The new article obligates non-residents, who are not registered with the Tax Authority and who are selling goods and services subject to the VAT to those who are not doing business through an institution inside Egypt, to submit a request for registration with the Tax Authority.

The amendments to the VAT law, however, did not go down well with a number of MPs who said the new exemptions will not do any good for ordinary citizens who suffer from high rates of inflation.

Ihab Mansour, parliamentary spokesperson of the Egyptian Social Democratic Party, said the VAT exemptions given to products like potato fertilisers, raw drug materials, and sanitary drainage equipment will not help poor and average-income citizens who will be overwhelmed by increases in other kinds of taxes, such as the stamp tax and the development fee.

Diaaeddin Dawoud, a Nasserist MP, said the exemptions granted by the new legislative amendments to the VAT law are insignificant. “While the government claims these amendments will help local industries, it plans to impose taxes on many products, something which will push inflation rates high,” Dawoud said.

In response, Yasser Oman, deputy chairman of the House’s Budget Committee, said the amendments to the VAT law show that the government is seriously interested in supporting local industry and local producers. “When the government supports local producers and local industry with tax exemptions, this helps keep the prices of products and services low,” Omar said, indicating that many vital industries like sanitary drainage equipment and services, animal fodder, fertilisers, paper industry inputs, and drug and vaccine raw material will be completely exempted from the VAT.

*A version of this article appears in print in the 16 December, 2021 edition of Al-Ahram Weekly.

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