Maximising tax revenues

Nahla Abul-Ezz, Sunday 9 Jan 2022

The Egyptian Tax Authority is combating tax evasion and integrating the informal sector into the formal economy in a bid to increase tax revenues.

Ministry of finance
Ministry of finance

The tax return submission season began on 1 January and ends on 31 March for individuals and 30 April for companies in Egypt, and observers believe that owing to the Covid-19 pandemic taxes due from Egyptian and international companies may disappoint and be less than the LE900 billion in revenues planned for in this year’s budget.  

The Ministry of Finance has amended the value-added tax (VAT) to raise the tax collected on goods such as alcoholic beverages, perfumes, pet foods, and some imported foods such as shrimps and salmon in a bid to increase the proceeds of the tax, which are scheduled to raise LE207 billion in the 2021-22 budget.

While the ministry did not announce the expected outcome of the increase, the House of Representatives, the lower house of Egypt’s parliament, approved the VAT amendments but postponed amendments to the stamp tax and development fees that the Finance Ministry had also proposed.

Minister of Finance Mohamed Maait said that campaigns to control tax evasion would help to maximise the revenues collected by the government, adding that combating tax evasion achieves justice between tax payers, increases revenues, and lowers the deficit, debt, and inflation.

It also helps to improve standards of living, upgrade the quality of services, increase wages, stabilise prices, and raise spending on development, education, and healthcare, he said.

Officials in charge of combating tax evasion are being trained according to the latest international expertise to carry out their duties correctly, laying the foundations of tax justice and integrating the informal sector into the formal economy, Maait added.

He explained that tax audits from 1 July 2018 to 30 November 2021 had been carried out on more than 14,000 establishments. 8,000 establishments, or 55 per cent of the total, were not registered with the Egyptian Tax Authority (ETA), while the total taxes collected amounted to more than LE530 million.

Maait said that inspections to combat tax evasion had revealed that some companies had registered their head office without registering their branches and had transferred transactions to unregistered branches in violation of the law.

He said that a registration certificate must be issued for each branch and the original certificate and the certificate of the branch placed in full view of customers.

The country’s electronic declaration system provides an accurate database of transactions at the national level, Maait said, contributing to verifying data stated in tax returns as one trader’s sales are another’s purchases.

The ETA’s Central Unit for Risk Analysis examines random samples from the transactions of registered tax payers in the electronic declaration system to verify the disclosure of sales and purchases and classify cases into high, medium, and low risk.

If VAT declarations are not included in transactions, files are referred to the ETA’s Anti-Tax Evasion Department to take the necessary legal measures. There can be penalties of between two and five years in prison in addition to fines and the payment of due taxes for tax evasion.

Reda Abdel-Kader, head of the ETA, said that what the government raises through taxes could increase by integrating the informal sector into the formal economy, giving the example of some malls, hotels, clubs, and residential compounds allowing sales on their premises without the vendors being registered for tax at the suthority.

“Some vendors sell their goods online and don’t have tax files,” he noted.

The ETA warned such venues that vendors should present their tax cards or could be held to be in violation of the law.

Al-Sayed Sakr, head of the Districts, Centres, and Outlets Sector of the ETA said its E-Commerce Department was also monitoring trade online and content creators in a bid to hold violators accountable.

Mohamed Al-Bahy, a member of the board of directors of the Federation of Egyptian Industries, said the ETA needed to look for new sources of income, including combating tax evasion and integrating the informal sector into the formal economy because existing tax payers were already paying enough taxes.

*A version of this article appears in print in the 6 January, 2022 edition of Al-Ahram Weekly.

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