By Islam Serour
Fears of negative consequences attached to the IMF loan is fuelling debate among Egypt’s business and economic community.
Some worry the loan could worsen national debt if the Egyptian pound were to be devalued, while others debate whether the government should focus more on the country’s domestic fiscal position rather than relying on external loans.
Calls have been made to adopt domestic fiscal measures, such as imposing taxes and tariffs, to stem the state budget deficit. Some experts believe this would be preferable as it is more socially acceptable and would avoid the risk of devaluing the pound.
The Ministry of Finance (MOF) has already started taking steps towards domestic fiscal measure to tackle the worsening budget deficit. The MOF announced that it will enact new legislation that resembles the tax payment motivation law, enacted at the beginning of 2012 that helped collect EGP three billion. The new bill stipulates that late taxes will be reduced by 10 percent if paid before the year’s end.
In the same respect MOF and the Ministry of Justice are planning to reassign the Real Estate Publicity Department (REPD) to collect real estate transaction taxes and have public notaries in court houses authenticate signatures in real estate transactions.
“The government focuses on long-term solutions and abandons short-term ones beforehand,” Dr Mohamed el-Bahiy, Vice Chairman of the Taxes Committee at the Industries Union (IU), Stated. “Refurbishing the taxation system could allow Egypt to give up the IMF loan and all the attached pitfalls,” el-Bahiy added.
However, the Government’s latest move to revitalise the tax system does not seem enough for the wholesale tackling of the tax evasion problem.
El-Bahiy believes “80 percent of the taxpayers in Egypt avoid paying taxes through legal loopholes.” He said sales tax laws state that the minimum taxable revenues is EGP 54 thousand for a factory and EGP 150 thousand for a merchant. This, according to el-Bahiy, encourages merchants and factories to issue undervalued invoices in order to avoid sales tax payment, putting in mind that sales taxes are indirect taxes, bear by the final consumer.
Elbahy suggests minimising or cancelling the mentioned limits, which could increase revenues by EGP 10 to EGP 12 billion.
Another example regarding land and properties is that “they are traded outside the taxing system,which is attributed to another legal loophole,” el-Bahiy said. The reason is that lands and properties can be legally sold without registration in the Real Estate Publicity Department (REPD), using the preliminary contract only. This leaves the state with great tax losses.
According to official statistics, the budget deficit during the 2011/2012 financial year has increased dramatically by EGP 30 billion, reaching EGP 135 billion. The Government, according to Ashraf el-Arabi, Minister of Planning and International Co-operation, will take steps to address the financial crisis that include diversifying sources of funding from both outside donors and domestic financial sources such as issuing treasury bills and bonds.