Egypt: Alternatives to taxation

Nahla Abul-Ezz, Monday 23 May 2022

Experts explain how Egypt can attain its LE1 trillion-plus target in tax revenues in the new budget without adding additional burdens to Al-Ahram Weekly.

Alternatives to taxation
Technology should optimise tax collection

 

The ripple effects of global crises have been reverberating through Egypt at a time when the government has also been drafting its new budget. In an effort to champion social protection, it is targeting almost a 30 per cent increase in tax revenues.

The government has said it wants to collect LE1.168 trillion in tax revenues in the 2022-23 fiscal year, up from LE900 billion in 2021-22.

Many observers are questioning whether this sum is attainable amid a slowing economy and high inflation rates, however.

Youssef Sallam, an expert on the economy, said that targeting higher tax revenues amid the current crises would put more burdens on people’s shoulders and also affect consumer spending.

Egypt’s Purchasing Managers Index, which identifies the amount of spending on consumption, has been shrinking for over a year, indicating that markets are also shrinking, Sallam said.

He said the state should increase its tax revenues by integrating the informal economy into the formal sector by launching further incentives, acting against tax evasion, and introducing the greater use of e-invoices.

These measures would increase tax revenues without imposing more taxes on the public or increasing the price of services, Sallam said.

Reda Abdel-Kader, head of the Egyptian Tax Authority (ETA), said several measures were being adopted to increase tax revenues without increasing people’s burdens, including the greater use of e-invoices.

He said that pilot trials had begun on the system, which will be mandatory for some starting on 1 July.

The system will help integrate the informal sector into the formal economy, identify the tax base more accurately, and establish the foundations for greater tax justice and equal opportunities, Abdel-Kader added.

He said that the ETA was accelerating the pace of implementing development and automisation projects to achieve Egypt’s 2030 Vision on digital transformation.

The e-receipt system is based on a central system that enables the ETA to follow up on all transactions of goods and services between providers and consumers. The system is implemented between consumer point-of-sale (POS) devices and business resource-planning software.

While there is no intention to impose more taxes, Abdel-Kader stressed, the system will mean that transactions between vendors and consumers are automatically aligned, helping to achieve a level playing field for companies in the Egyptian market and speeding up remote check-ups.

Hassan Ouda, a professor of public finance at the German University in Cairo (GUC), said cracking down on tax evasion could enable the state to earn more in revenues and increase spending allocations.

It was also important to link the government’s spending with performance indicators and achievements, Ouda said.

Economic expert Hani Tawfik said that the government’s fiscal policies should be reviewed to focus more on greater financial inclusion, since the currently restricted tax base costs the state some LE700 billion annually.

Tawfik suggested reducing taxes on companies to stimulate investment and employment, adding that tax exemptions should be directly proportional to their amount of business.

*A version of this article appears in print in the 19 May, 2022 edition of Al-Ahram Weekly.

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