By Abdel Razek Al-Shuweikhi
Increasing the tax burden will not result in an increase in revenue, President of the Tax Experts Association Ashraf Abdel Ghani said Sunday, ruling out the finance ministry’s ability to increase revenue to EGP 10bn during the coming fiscal year.
“This is an impossible task,” Abdel Ghani said. “The imposition of additional taxes does not need to be accompanied by an increase in tax revenues. As the value of taxes imposed increases, the evasion rate will increase as well, especially with the lack of a regulatory system to prevent it.”
Abdel Ghani said that the government is betting on increased tax revenues to raise corporate profit taxes to 30%, as opposed to the current 25%. “This, in turn, would negatively affect investment, and on the other hand, will reduce expected tax revenues.”
“This is a short-term solution for increasing revenue, but is harmful to the economy in the long-term. It would have been preferable for the government to strive for solutions that do not harm the economy in the long-term,” said Abdel Ghani.
Instead, he asserted, the government must, before increasing the burden on the investor, solve disputes within taxation committees and courts, for which arrears amount to EGP 74bn.
Encouraging the parallel economy to join the formal sector, according to Abdel Ghani, represents another “better” solution “as the state did not take any real encouraging measures urging them to join the formal economy” .
He added: “Including the informal economy in the economy system will bring in revenues of approximately EGP 150bn, and in the long-term, it will prove beneficial to the economy.”
The finance ministry mentioned in its press release Sunday that it intends to introduce reforms and amendments to the general tax law aimed at broadening the tax base, achieving a just distribution of the burden, and linking proceeds to growth in economic activity, “without mentioning any details related to the process,” said Tarek Hammad, a professor of accounting and taxation at Ain Shams University.
Hammad added: “Strong resistance from the informal sector will prevent this objective from being achieved.”
An official from the Egyptian Tax Authority said that tax revenues will represent 60% of general revenues with the introduction of value-added tax amendments, which are expected to amass between EGP 6-6.5bn.
The official, who preferred not to be named, said that the value added tax law has not yet been completed and is expected to be implemented during the second quarter of the 2015/2016 fiscal year.
According to the statement, total tax revenues in Egypt account for approximately 14% of GDP, one of the lowest rates in the world.
The amendments related to income taxes also include approval for an additional tax bracket in the income tax structure which will include a 5% tax imposed on natural persons and legal entities whose income exceeds EGP 1m annually.
The official mentioned that this tax will be imposed at the beginning of the fiscal year next July and expected revenues are estimated at EGP 3.5bn.
