A surprising statement was released by President Mohamed Morsy early on Monday, suspending proposed tax hikes just hours after they were posted in the official gazette on Sunday.
“The president realises the extent of the burdens that the Egyptian citizen has during this rough economic stage… he does not accept that the citizen bears any additional burdens, except through their own free will so he has decided to suspend the decisions…” the statement read. It added that the president has tasked the government with holding public discussions on the matter.
The tax rise included increasing sales taxes on cigarettes, alcoholic and non-alcoholic beer, wine, fizzy drinks, non-subsidised vegetable oil, fertilisers and construction materials such as steel and cement. It also raised taxes on services such as, national and international calls made from mobile phones and air conditioned transport, for example buses and trains.
The tax hikes were posted in the state’s official gazette. The decision to halt the hikes, however, was not. Mohamed Fadel, a lawyer from the Egyptian Centre for Social and Economic Rights (ECSER) said, “this means that the government has the right to ask people for the taxes. The decision must be suspended through a similar way in which the original one was carried out.”
He added that the suspension and calls for discussion could just be a way to calm the public down.
“But the truth is, that this is an absurd stance and no one can understand it,” Fadel said regarding the turnover of the decision.
Malek Adly, another lawyer at the ECSER, said that this is not the first time the president has made a decision and then revoked it. “The dialogue should come before the decision, not after,” he said. Adly also believes this is an indicator that the president makes decisions which are not well calculated and provoke the people.
Malak Reda, an economist in the Egyptian Centre for Economic Studies, said that Egypt’s budget deficit exceeds 10 per cent and the president needs to raise revenue to be able to pay wages and subsidies. Reda states that the taxes are among the main sources of income for the country and raising taxes on goods that are luxurious or harmful such as cigarettes, could be one way of increasing revenue.
“However, raising taxes on construction and agricultural materials, this is where we entering a dangerous area and this could be the reason why the decision was frozen,” she said. She feels that the hikes should affect people who trade in real estate and have vacant property, yet unless the government couples the taxes together with a programme that provides affordable housing for the average person, ordinary citizens will not be able to afford building housing of their own.
Adly said, “these decisions burden the average citizen… it affects the citizens’ daily lives and it will not reduce the budget deficit.”
Adly stated that taxing all these goods and services combined will not make up for the losses made by Maspero, which from the number from the closing balance for this year, made a shortfall of more than EGP three billion and three hundred million. Maspero hosts Egypt’s state-run television and headquarters the Egyptian Radio and Television Union.
“You can see the huge losses made by one body… reducing the deficit shouldn’t happen by taking from the average citizen’s pocket,” he said.
Adly believes that what really needs to be done is for the government to fight corruption and review the budget of the Ministry of Defence, which is not disclosed to the public or Ministry of Interior, which Adly avers, “can reduce the deficit of two countries, not one.”
He added that the tax hike is related to the International Monetary Fund (IMF) loan Egypt has applied for and that the revenues from tax hikes will be used to pay the interests of the loan. Egypt has signed a preliminary agreement with the IMF for a $ 4.8 billion loan, which the IMF board will review on 19 December.
The ECSER has filed a lawsuit demanding the government to publicise the full conditions of the loan.
Reda said, “put the loan aside we are in a bad place, economically… the next few months will decide.” She said that austerity will come whether we take the loan or not, but if we take it, it has to be used on services, like schools and hospitals and production. Otherwise, she added, if it is used on subsidies and wages, the budget deficit will become worse.