Egypt issues VAT reform plans
- 11 April 2014 | Richard Asquith
Egypt has issued its much-anticipated plans to replace the existing General Sales Tax (GST) with a full Value Added Tax.
Economic conditions demand reform
The existing GST regime is estimated to cost the economy up to 1% of GDP because of the lack of opportunities for companies to recover GST incurred. In addition it has a narrow tax base of just 14% of GDP compared to its nearby competitor, Turkey, which has a 20% share. This leaves the country vulnerable to erratic swings in its revenues according to its economic performance. Raising the tax take would enable Egypt to to cut its high corporate income tax of 25%, compared to Turkey’s 20%.
There had been speculation in January that Egypt VAT would be introduced at 10% or 12%.
The rates on the current GST are:
- 10% Standard GST rate
- 100% higher GST rate on: alcohol; tobacco
- 45% higher GST rate on: powerful cars
- 25% higher GST rate on: Audio visual equipment; air conditioners
- 15% higher GST rate on: telecoms services
- 5% reduced GST rate on: coffee; soap
Proposed Egypt VAT regime
The standard VAT rate has yet to be determined, but will be up to 12%. Exports, and a range of basic goods were be exempted. In addition, the free trade zones will not come within the VAT net. There will also be a reverse charge VAT option for imports of services. Goods will be liable to Egyptian VAT upon clearance from customs.
The new regime is based on the current OECD-adopted guidelines, which includes the basic principles of neutrality for companies administering the tax through the supply chain, including full recoverability of input VAT incurred on imports and domestic supplies.