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Al-Saeed: Tax reforms are part of a programme to overcome the current crisis - Daily News Egypt

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Al-Saeed: Tax reforms are part of a programme to overcome the current crisis

Changes in the tax code had been approved after the ministry had consulted with various business organizations, according to the minister of finance

Minister of Finance Mumtaz Al-Saeed said that the government is open to discussing ways to help see Egypt through its current economic crisis, which includes a USD 14.5 billion funding gap until the 2013/2014 fiscal year. He added that it was important for the country’s political leadership to realise the seriousness of Egypt’s current crisis and do all that is necessary to help expedite the recovery process, which includes accepting the pending IMF loan.

It was wrong to suggest that the IMF sought to use the loan to place conditions and restrictions on Egypt, said Al-Saeed, but rather that their goal was to help see the country through its crisis and into recovery.

He further went on to say that the IMF hoped to help encourage local and foreign investment in Egypt. He added that if Egypt’s economic problems increase it will hurt the IMF’s relationship with the international community.

Al-Saeed said the country’s recent reform programme was designed and will be implemented entirely by the Egyptian government, and the IMF had no hand in pushing for its creation. The government’s goal in developing the programme, he explained, was to demonstrate the country’s economic potential to the IMF, attract investment and increase work opportunities.

The reform programme was designed during a recent meeting between Al-Saeed and Ahmed Al-Wakil, president of the Board of Directors of Egypt’s Chambers of Commerce. This was the first of what is to be a series of meetings between Al-Saeed and various members of the country’s political and economic elite.

The meetings were called forth by President Mohamed Morsy to address issues facing the country, in particular the government’s recent amendments to Egypt’s tax code. Other officials present at the meeting included aide to the Finance Minister Hani Qadri, president of the Finance Minister’s office sector Ayman Gowhar, president of Interest Taxes Mumdua Omar, President of Real Estate Interest Taxes Hasan Abbas, Tax Advisor to the Finance Minister Muhammad Surur, President of the Tax Regions Sector Mustafa Abd Al-Qadr, President of the Cairo Chamber of Commerce and Vice President of the Chambers Union Ibrahim Al-Arabi, and Second Vice President of the Chambers Union Muhammad Al-Masri, in addition to other members of the Chambers Union.

Al-Saeed went on to say Egypt’s budget deficit could reach anywhere between EGP 185 billion and EGP 200 billion if the country does not undergo serious reform. He pointed out the country’s revenues are only enough to cover 60 per cent of its expenditures, and in order to address this problem the government must either decrease spending, raise taxes/revenues or do both.

The third option, he added, was most likely what the government would do when implementing its reform programme. Al-Saeed went on to say that the government had hoped to prioritize EGP 40 billion worth of spending, but with repeated postponement of tax increases, the most they would be able to put together is a EGP 10 billion spending package. He predicted that these measures would not have a large enough long- or short-term effect on the poorer cross sections of Egyptian society.

He said that the reform programme also sought to prevent instances of tax evasion in addition to increasing accountability and simplifying the nation’s tax code.

The government’s attempt to simplify the tax code, Al-Saeed said, was reflected in two new policies aimed at putting an end to taxation of Egypt’s informal sectors and exempting capital goods from taxation altogether. He added that Egypt’s period of late tax performance incentives had been extended from December 2012 to the end of March 2013, and would be determined on the basis of taxes owed, as opposed to delayed interest and fines.

Al-Saeed claimed that changes in the tax code had been approved after the ministry had consulted with various business organizations. Housing organizations for example were moved into a higher tax bracket in order to match the rate at which their salaries and production had been taxed until now. Steel and cement companies were also consulted before decisions were made to raise taxes from 15 per cent to 18 per cent on those sectors.

Hani Qadri, aide to the finance minister, stated that a EGP 25 pound tax would be put on phone lines that had only been used once, in an attempt to combat the phenomenon of people buying multiple phones and using each one for short periods before moving on to the next.

He said there would be a 75 piaster increase in taxes on local cigarettes, as opposed to a EGP 1.25 increase on imported cigarettes. He added that these taxes may at some point be lowered in order to balance the production of local cigarettes with imported cigarettes.

Qadri went on to say that there were some sectors that would not see tax increases, such as subsidized flour, sugar, pasta, rice, medicine and general food supplies. Cement and soda water would not be subject to the 10 per cent general tax bracket and would instead remain at 5 per cent. While these sectors would not see tax increases, he pointed out, accountability methods for collecting taxes would change.

In response to questions regarding recent amendments to Egypt’s tax code and demands by some to change and alter those amendments, Qadri said a new set of amendments had already been proposed that would affect 50 different products. It included new products that had not previously been considered, and excluded others that earlier had been set to have their rates increased.

Ahmed Al-Wakil, president of the Egypt’s Chamber of Commerce, said his organization had reviewed the list of amendments made to Egypt’s tax code, emphasising that only some products would see their taxes increase, but not all. He said that issues regarding Egypt’s tax code would be discussed within the country’s local Chambers of Commerce in an attempt to hash out all points of contention and create a unified economic vision for Egypt.

He added that Egypt’s business community was well aware of the need to do all that was necessary to see the country through its current economic crisis. He added that acceptance of Egypt’s pending IMF loan was significant and necessary in order to demonstrate the strength of the country’s economy and its ability to achieve its social, economic and development goals. This, he said, would lead to increased levels of investment and higher revenues from taxes and customs fees.

Al-Saeed said that the government had been very careful to make sure the recent amendments made to Egypt’s tax code did not affect the poor and middle class cross sections of society. Some have suggested raising taxes on sold goods from 10 per cent to 12 per cent, a number still considerably lower than the 15 per cent seen in neighbouring countries. However, Egypt’s political leadership combined several of the country’s various tax brackets and create a general graduated system, imposing a 10 per cent across the board tax on most products in order to reduce the burden on citizens. He added that certain products that carried with them special social significance would have lower tax rates and be exempted from the general bracket.

Al-Saeed said that many essential goods in Egypt had not seen their tax rates increase since 1991 despite the fact that the cost of many of those products had risen considerably.

Regarding recent amendments to the country’s stamp tax on advertising, Al-Saeed claimed that these measures were done to help facilitate the actions of Egypt’s business community, pointing out that the price of electricity, water and gas for residential use had not been raised.

The finance minister also approved amendments to Egypt’s income tax, widening the country’s tax base in order to ease the burden on the country’s payroll managers. He also announced plans to amend the country’s real estate tax within three months, saying that Egyptian tourist and industrial facilities would be subject to new rates.

Mohamed Al-Masry, Vice President of Egypt’s Chamber of Commerce, said steps were needed to be taken in order to encourage investment in the country. These steps included facilitating the creation of new businesses and development projects. He added that it was necessary to revamp the authorization process for such investments so that businesses and investors could receive approval for such ventures in a timely manner. Al-Masry said this would help stabilize Egypt’s labour market, and foster a positive environment conducive for exploiting the country’s natural resources.

Al-Saeed further said that the government had increased its amount of funding for local investment projects from EGP 28 billion to EGP 43 billion. He pointed to this last measure as a testament to the government’s efforts to strengthen and guide Egypt’s economy.

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