Will new tax law save Egypt from budget deficit?
While the Egyptian government is confident that the new value added tax bill will not increase consumer prices, others say it is too early to tell.
CAIRO — Egypt’s parliament is currently discussing the final version of the value added tax bill in preparation for its entry into force to supersede the general sales tax law of 1991. The government claims that this draft law will increase state revenues and curb the budget deficit, which has ranged between 11% and 13% over the past six years.
Egypt has been facing high inflation rates over the past several months due to the high rate of the US dollar against the Egyptian pound. The annual inflation rate jumped to 14% in June compared with 12.3% in May, the highest rate in seven years, according to data from the Central Agency for Public Mobilization and Statistics.
According to the draft, the VAT will be imposed on goods and services at each stage of production or distribution. The taxpayer would pay at every stage a tax on the value added by that specific stage to the final value of the good or service. The increase is then added to the sale price of the good or service to the end consumer.
A study by the Ministry of Finance published in July says that the VAT law is necessary in light of the urgent need to increase revenues to control the increasing and elevated deficit in the state budget. However, the study did note, “A proper timing must be determined to impose the VAT, to avoid inflationary pressures. Creating a new tax at a time when the value of the national currency is deteriorating and prices of imported goods are rising would certainly be responsible for an increase in prices.”
