Egypt’s VAT bill to be finalised Sunday, MPs sticking to 12% rate

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Egypt’s long-awaited value added tax (VAT) bill will be finalised Sunday to be put up for general parliamentary debate, with MPs sticking to the 12 percent rate, said MP and member of the planning and budget committee Talaat Khalil.

Khalil told Ahram Online that the bill, which is being discussed by the planning and budget committee, is expected to be ratified before parliamentary recess, starting in September, as Egypt is “in dire need for it.”

The VAT law is part of the government’s fiscal reform programme, implemented in July 2014, through which energy subsidies are cut and new taxes are introduced, to reduce the country’s ballooning budget deficit – estimated at 11.5 percent of GDP in fiscal year 2015/16.

The new tax, which is scheduled to be implemented in September, was expected to be voted on in parliament earlier this week, but Khalil says the delay was caused by the VAT rate “controversy.”

The parliament is largely holding on to a VAT rate of 12 percent, while the cabinet is insisting on a 14 percent rate.

MP Sayed Abdel-Al reiterated the parliamentarians’ demand to reduce the VAT rate to 12 percent to avoid inflationary impacts.

A 14 percent VAT rate is expected to generate EGP 32 billion in the 2016/17 state budget, according to Abdel-Al, who is a member of the Economic Committee in the parliament.

However, deputy finance minister Amr El-Mounir told Al-Shorouk newspaper that issuing a VAT rate at less than 14 percent would cause a budget imbalance.

“If the government holds onto the 14 percent rate, the parliament might reject the bill,” Abdel-Al said.

On the delay of the bill, Khalil said that its clauses were also revised and amended by the committee.

“We made a lot of amendments to the draft law, as we exempted some goods and services from the draft law and included others to the list,” the MP revealed.

In May, Egypt’s finance ministry listed 52 commodities and services that will be exempted from the VAT, including all essential food goods, dairy products, babies’ milk and their nutritional supplements, and petroleum products.

“We added five elements to the exempted goods as local and imported medicine, and included other goods which were previously exempted as the TV and radio production,” Khalil said.

“The [VAT] should be imposed on those who can spend more than low-income people so as not to put an additional burden on citizens,” he explained.

The government decided to slash its total subsidy bill in the current 2016/17 budget, which began in July, by 14 percent compared to the last fiscal year’s bill, estimated at EGP 154 billion.

“The VAT is regarded as a consumer tax, which means those who consume a lot will pay more,” finance minister Amr El-Garhy said earlier.

The minister said in July that the VAT may lead to price inflation ranging between 0.5 percent for low-income Egyptians and up to 2.3 percent for the upper class.

The VAT law is part of a government reform programme that has been endorsed by the International Monetary Fund (IMF), and has led to an initial agreement between the government and the global lender on a $12 billion fund facility over three years, which is expected to be approved by the fund’s executive board in the coming weeks.

Egypt, which relies heavily on imports, particularly of foodstuffs, has been suffering a severe shortage of US dollars in the wake of political and security unrest that has scared off tourists and foreign investors, two major sources of hard currency.

Source: Ahram Online