A recipe for tax reform

Nahla Abul-Ezz, Saturday 18 Jun 2022

Several steps have been taken on the road to tax reform, but more are needed in order to draw in more investments and maximise revenues.

A recipe for tax reform

 

Decreasing taxes and increasing revenues are any finance minister’s dream, said Amr Al-Monayer, a former deputy minister of finance for tax policy, at a seminar organised by the Egyptian Association for Political Economy, Statistics, and Legislation, a Cairo think tank, this week.

Imposing fewer taxes draws in more investments, widens the tax base, and helps in merging the informal sector with the formal economy, he added, noting that taxation is a pillar that strengthens states, but increasing taxes discourages people from working because there are fewer incentives to make money.

Al-Monayer said at the symposium that tax reform was four-pronged and included tax policy, tax legislation, the tax administration, and tax-payers.

Tax reform in Egypt began in 2016 with legislation to change the sales tax into a value-added tax (VAT), a law on ending tax disputes, and a unified tax procedures law. The state was focused on reforming tax policy, Al-Monayer explained, because no reforms could take place without a clear and stable tax policy.

It was more important for investors to see political and social stability and the stability of tax policies than to receive tax exemptions, he said. When taxes increase and exemptions are lifted too often, investors may become unable to predict revenues and profits, he added.

Egypt needed a special council for tax policies, he said, to help the government interact with the people more appropriately, study the impact of taxes on inflation, prices and investments, provide the information necessary to take appropriate tax decisions, and ensure the application of tax policies.

He said he believed tax policy reform should be a national project that should target establishing a stable policy in the shorter and longer terms and increasing tax revenues as a proportion of GDP. As such, tax reform would become the gateway to decreasing the budget deficit and public debt, Al-Monayer said.

For reform to be successful, more trust between entrepreneurs and the tax administration should be established, he added, and any reforms should not be limited to amending laws, but should be carried out with a view to bringing about economic change.

These targets could be achieved if a council for tax policies was formed to be in charge of drafting tax policies and coordinating between policy-makers and administrators, Al-Monayer said.

The economic reforms of 2017 had increased the contribution of taxes to GDP from seven per cent to 12 per cent and were originally targeted to reach 19 per cent much like in other countries with similar economic conditions, he noted.

There can be no successful tax policy without reforming the tax administration, Al-Monayer said. This requires raising the performance of the system, reducing bureaucracy, increasing tax compliance, and combating financial and administrative corruption in revenue-generating bodies.

It was also vital to design an integrated system to motivate employees and another system for psychological, technical, and professional evaluation, he said. These should be used for development and capacity-building, providing professional and administrative training, improving the work environment, and removing administrative obstacles facing investors.

Al-Monayer added that Egypt had taken several steps to integrate the informal economy into the formal sector, such as e-invoices and e-transactions, and these moves would support the national economy.

He said that the country’s bank secrecy regulations should help it to sign the international Convention on Mutual Administrative Assistance in Tax Matters and ease its access to a network equivalent to more than 6,000 bilateral agreements that allow countries to obtain tax-related information from some 130 jurisdictions around the world.

 

A version of this article appears in print in the 16 June, 2022 edition of Al-Ahram Weekly.

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