CAIRO: Egypt’s Real Estate Tax Authority has exempt 6 million people and 9 million units from paying property taxes this year, making up roughly 90 percent of the tax base, Al-Ahram reported.
In some governorates, 100 percent of citizens were exempt, the state-run daily reported on Monday.
Finance Minister Youssef Boutros-Ghali said studies have been completed on the evaluation criteria of real estate units utilized in industrial activities, which are currently being presented to representatives from each industrial sector before final approval.
The finance ministry is also currently coordinating with the tourism ministry to develop similar studies for real estate in the tourism sector, particularly hotel facilities, saying that it is not in the government’s interest to increase the burden on an already struggling sector.
According to the contentious real estate tax law, property utilized for commercial, industrial or service purposes will only be subject to corporate taxes, he added. The value-added tax on the profits of such activities is sufficient, Ghali said, and has priority over the real estate tax in that it prevents a misplacement of the tax burden from producers of goods and services to the end-user.
Magda Kandil, executive director of the Egyptian Center for Economic Studies, described the exemptions as a political move brought about by the fact that the government has not been able to convince the average Egyptian citizen of the benefits of the tax, provoking ire and causing many to question the supposed trickle-down effect of the increased revenues.
“People started wondering why they are being taxed for their lifetime investments and what they would get in return for this, and it became a question of social equity instead of a question of resolving the public finance situation,” Kandil said.
Egyptians do not trust the government to use the tax revenues in citizens’ interest, which spurred major opposition and anger when the tax was introduced. It was due to be implemented at the start of the year but has been delayed.
Under the real estate tax, houses and flats valued less than LE 450,000 will be exempted from taxes, while houses valued at LE 1 million would be taxed LE 660 per year. Officials have repeatedly said that 90 percent of Egyptians will be exempt in an attempt to quell opposition.
“These statements about tax exemptions are an attempt to calm people’s anger,” Kandil said, “trying to get the public to believe that the bulk of the people will be exempted and that they are going after the mega homes of the rich.”
Kandil went on to explain that although this tax should have been fully enforced by now, the upcoming parliamentary and presidential elections will impede the progress of tax reforms such as these with the government trying to save face and to pacify people’s anger.
She did add however that in its struggle to bridge the gap in the national budget, the government has resorted to tax reforms, which according to her is a necessary step. “But if you look at this issue from a political economy perspective,” she said, “the public thinks that this tax burden will fall on the average person, and feel that filling the budget hole is not their problem, causing the political cost of higher taxing on real estate to dominate the potential benefits from increased revenue.”
She said the Ministry of Finance’s real estate tax revenue projections are too low when counterbalanced by the unfavorable political fallout the tax has had. “Maybe this is not the right approach,” she said, suggesting that the government’s main priority for tax reform should be widening the tax base.
Exemptions like these in terms of the real estate tax are not so important when looking at the bigger picture and the organizational, administrative problems associated with tax collection and revenue generation, she added. “Identifying the tax base is the main problem in Egypt as the informal economy leads to a large number of transactions which are not being properly taxed.”
Although Kandil gave credit to the recent improvements in collecting revenues, revenue generation remains a problem, in her view, when compared to the international experience in terms of revenues to GDP.
She said that for Egypt. This ratio is expected to be around 21 percent for the 2010/11 fiscal year and that in the past few years, revenue was around 20-24 percent of GDP.
Expenditures for 2009/10 on the other had were at 31 percent of GDP and are expected to be at 29 percent in 2011, expecting an 8 percent gap this year.
“This persistent deficit over time is not sustainable,” she said.