Under the slogan “Future Tax System and its Impact on the Economy and Investment,” the Egyptian Society for Taxation (EST) sponsored a conference yesterday, discussing new reforms which would enhance the Egyptian taxation system.
The conference was headed by Ahmed Sawqqi, chairman of the EST, and attended by Mamdouh Omar, the newly appointed chairman of Egypt’s Tax Authority (ETA), and the president’s chief-of-staff, Mohamed Al-Tahtawy.
It reflected a leaning toward replacing the existing General Sales Tax (GST) with Value-Added Tax; a type of consumption tax applied in the European Union that is placed on a product whenever value is added to a stage of production and at a final sale. “The conference discusses the inevitable transition to Value-Added Tax, rather than General Sales Tax,” MENA reported Shawqqy saying.
Mohamed Al-Bahiy, head of the Taxes Committee in Egypt’s Federation of Industries (EFI), delivered the EFI vision in his statement to the conference, concluding that GST law has many legal loopholes which foster tax evasion and hobble taxation efficiency.
According to GST law, the minimum taxable revenues of a factory amount to EGP 54 thousand. This makes it tempting for merchants and factories to issue undervalued invoices in order to elude sales tax payment. Al-Bahiy called for the removal of these minimum revenues.
The pitfalls of a highly deregulated market pertaining to Egypt can lead to the same results of GST. Ashraf Al-Arabi, former chairman of ETA, explained that VAT requires merchants and factories to keep documentations such as invoices and financial statements, which are not yet attainable. “VAT depends primarily on the society’s capacity to apply it,” Al-Arabi clarified.
He added that the ETA has not yet achieved the degree of robustness that allows for achieving optimal taxation in Egypt. Al-Arabi pointed out that the main goal of changing to VAT is to include services under the taxation umbrella. “All services provided by private enterprises should keep sound and authenticable documentation in order for VAT to be applicable.”
Services such as tourism, private hospitals and clinics, engineering consulting services under VAT umbrella were put forward by Al-Bahiy. However, fears of inflation hinder any step forward to the enforcement of VAT.
Mamdouh Omar, the incumbent chairman of ETA, stated that there will be no tax reforms during the current sensitive period to avoid inflation or scaring away foreign investors, Al-Borsa News reported yesterday.
During the previous period there occurred criticism over what some experts like to dub as the lamentable state of Egypt’s taxation system, triggered by financial strains inflicted on Egypt. The government is unable to fully impose taxes. According to official circulating figures, only 20 per cent of Egypt’s taxpayers actually pay taxes.