CAIRO: The People’s Assembly budget and planning committee approved a 5 percent sales tax on cement price as part of a “a supplementary budget report”, the state-run daily Al-Ahram reported.
The government has been deliberating raising the tax on steel and cement; 5-8 percent on steel and 5 percent for cement, which is currently taxed under a flat rate standing at LE1.40 for imported cement and LE 2.50 for locally produced cement, according to Reuters.
The funds generated from such a hike would permit the government to pay for much needed public services, such as health care. The committee has also approved a tax hike for cigarettes (40 percent) and shisha tobacco (100 percent).
According to the Finance Minister Youssef Boutros-Ghali, the deficit projected for the next fiscal year would be 7.9 percent of gross domestic product, citing Reuters.
Such a budget deficit would make it difficult for the government to provide quality public services to an ever-burgeoning population, making the new proposed taxes a logical public policy decision.
Omar Taha, research analyst and construction and building specialist at Beltone Financial, confirmed over the phone that this move is “necessary on the budget side” in the eyes of the government.
In a telephone interview Samir Namaan, executive officer of Ezz Steel, agreed. “This decision was most likely for budgetary reasons. However, this can’t be confirmed with concrete evidence.”
He indicated that industries that are considered high-energy consumers and high emitters of green house gases have been the target of such taxes as of late.
Taha drew attention to the fact that both the steel and cement sectors have been performing particularly well, making them easy targets for tax hikes. “Both the steel and cement sectors have shown good numbers over the past 18 months, so it is politically easier to target these industries”, he added.
Although the two sectors may be better able to sustain higher taxes, Taha said that this could negatively impact growth.
“The tax will likely hurt demand; because in the end, even though the tax is placed on industry, it will thereafter be passed on to traders who will then pass the new burden on consumers,” which will consequently dampen demand for both raw materials.
Namaan confirmed Taha’s statement: “At the end the cost will simply be passed onto the consumer.”
He pointed out that this potential tax increase would result in LE 120 per ton of steel for the consumer.
Reports have even indicated that the government has been contemplating imposing a 10 percent tax on cement, but still this remains largely speculation.
Namaan criticized the government for considering such a measure, because “the government has been trying for a long time to reduce costs placed on consumers.”
He added, “The government had previously introduced regulatory measures to monitor the market and to ensure that no excessive pricing was taking place, so that products reached consumers at a reasonable price.”
In Namaan’s estimation, “this measure seems to fly completely in the face of the government’s objective of decreasing the cost burden placed on consumers.”
Assessing whether this decision would stunt economic growth if adopted, Namaan asserted, “in the end, there is always a negative reaction to any newly proposed tax, but as time marches on, the economic actors involved — consumers included — adjust to a new environment and conditions.”
