Businessmen have requested the government to collect the 5% ‘Wealth Tax’, which has been put in place for those with an income exceeding EGP 1m per annum, through an “in kind” method rather than through cash.
The tax would be collected through the implementation of development projects that would be adopted by January 2015.
Hussein Sabbour, president of the Egyptian Businessmen Association, stated that collecting the tax through cash payment contradicts the original reason for why the tax was implemented, which was to encourage the business community’s involvement in development through the implementation of projects.
He added that the government’s insistence on collecting cash negatively affects the trust between the business community and the government, and that the government may use this cash to plug in or control its worsening debt without focusing on development and financing projects, or on the education, health and infrastructure sectors.
A group of businessmen contacted officials at the Ministry of Finance to gain the minister’s approval to pay the tax in kind through government-approved development projects rather than through cash, but a source within the ministry stated that there will be no change to the tax being collected in cash.
The source added that the Ministry of Finance has promised to coordinate with the Ministry of Planning on several development projects in different geographic areas to determine which specific projects will be most benefitted by the cash from the tax payments.
The source stated that in kind payments will cause conflicts with businessmen when assessing the their value compared to the taxes owed. Sabbour however believes that this is a misplaced fear, because businessmen suggested the tax in the first place and will implement projects at a higher value than the tax.
In its efforts to increase resources and keep the deficit in check, the government put the ‘Wealth Tax’ and a capital gains tax in place, in addition to reducing energy subsidies, as part of its larger economic reform programme for the country’s economy recovery.
The government will receive this additional temporary tax for a period of three years only. The idea for the tax came from businessman Sami Sawaris, who has stated that the businessman has the right to choose between in kind and cash methods to pay his taxes.
“I completely reject the imposition of any taxes right now, because of the sluggish and tired economic situation, and the idea that tax revenue will rise with the increase in taxes is a lie,” said businessman Alaa Arafa, who believes that the government has not clarified what will be done with the revenue from the Wealth Tax.
“Why don’t we hold the government accountable for all the taxes it collects?” Arafa said, adding he believes that his company is involved in social work “to the fullest extent” and questioned the need for the government to increase its financial demands on businessmen.
Galal el-Zorba, a businessman and former head of the Industries Union (IU), has a different opinion. He stated that he agrees with cash collection on the tax but on the condition that the government lists the development projects in the pipeline and lets businessmen choose which projects to fund, as a way to directly ensure that the government will not be using proceeds from the tax to simply balance the deficit without focusing on development as well.
Yasser Maharem, head of the Egypt Tax Society (ETS), however, rejects this approach completely and believes that the government must allow businessmen to pay the tax in kind, so they can focus on issues like youth development through specific government-approved projects.
