Egypt 10% or 12% VAT law this month
- 16 January 2014 | Richard Asquith
Egypt is set to bring forward a Bill to introduce Value Added Tax, replacing the existing General Sales Tax regime by the end of 2014. It is believed that the new tax will be set between 10% and 12%, and will help more than half the burgeoning 13% government deficit.
VAT Bill with IMF encouragement
Egypt needs to update its antiquated consumption tax regime (see below for issues), including extending the tax net to help it grow its much-needed tax revenues and cut the heavy government deficit. It has been seeking a $5bn loan from the International Monetary Fund, which has in turn insisted VAT reform is implemented as part of a package of economic reforms.
The new VAT Bill is reported to extend the tax to a much wider range of goods and services, and improve the deductibility of VAT incurred by businesses in the course of B2B trade.
Egyptian General Sales Tax distorts economy
GST was introduced to Egypt in 1991, and is little changed since then. The current standard GST rate is 10%, with reduced 5% rate on basic foodstuffs and telecom services. There are higher rates of 25% and 45% on luxury goods. The scope of the tax includes all goods, but only a limited number of proscribed services. There is a limited right to deduct input VAT on goods, and no scope for providers of services. This leads to a heavy and distorting tax burden on companies, and compounding of the GST through the supply chain.
In addition, there is no facility for foreign companies trading to recover VAT through a non-resident VAT registration. There is also no VAT reverse charge mechanism either.
Egypt originally drew up VAT legislation in 2006 for implementation the following year. However, the start of the global financial crisis and raging Egyptian inflation meant it had to be shelved.
These reforms match similar programmes in other developing economies. China VAT reform is well under way, and India hopes to introduce a modern GST after the next election.