By Ahmed Farhat
The government will expand the tax base to include all activities and income attained as part of the unified investment law currently being prepared, said Finance Minister Hany Kadry Dimian.
In an interview with Al-Borsa, Dimian said the government will prepare a new system for calculating taxes for small and medium enterprises (SMEs). The changes will entail combined income and sales tax to facilitate administrative dealings with the taxpayer, as well as administrative tax work.
Dimian said that exempting larger establishments from taxes deprives society of the opportunity to recover a portion of its profits from these establishments’ transactions as they utilise state resources.
“This is incompatible with the principle of tax justice, which is based on the ability to pay,” Dimian said. “As long as the ability to pay exists, a natural person or establishment must perform his/its tax duties.”
He added that the state will not benefit from exemptions granted to foreign investors, as they will pay full tax in their home countries in accordance with agreements prohibiting double taxation.
Regarding the budget deficit for the fiscal year (FY) 2013/2014, Dimian said the ministry is in the process of finalising settlements with government bodies and authorities. Significant settlements with the Ministry of Petroleum have already been made.
Dimian said the deficit hovers around 12.5%, and could measure slightly more than this amount. He added that tax arrears were not paid for FY 2013/2014 but will be paid during FY 2014/2015.
Dimian responded to questions on the ministry utilising EGP 30bn linked to a stimulus package from the Central Bank of Egypt (CBE)’s temporary accounts to reduce the budget deficit. He said that the budget law and its appendices granted the finance minister the right to use a portion of these funds in emergency situations but only through cabinet approval.
He added that these sums were deposited by the CBE as strategic reserves to be used to confront exceptional circumstances, not to overcome the state’s budget deficit.
Dimian said that the government is depending on a number of major projects to get the economy rolling once again. These include the Suez Canal Axis Development project and an initiative to reclaim 1m feddan of land. Other projects involve partnerships with the private sector, such as constructing a desalination plant in Sharm El-Sheikh and Safaga Industrial Port as well as developing port logistics.
Dimian said the role of the finance ministry in funding projects was limited to Part VI of the state budget, pertaining to government investments. An amount worth EGP 50bn was stipulated in the budget for FY 2014/2015 compared to EGP 30bn last year, representing an increase of 40%.
Dimian predicted that projects included in the FY 2013/2014 budget were implemented at an average of 80%, in light of the settlements that are presently ongoing.
Regarding budget savings over the past two months, Dimian said the most important items saved on in the budget include a reduction in energy subsidies. The ministry conducts settlements every three months in accordance with economic reform programmes in order to adjust prices for petroleum products and electricity.
Savings for FY 2014/2015 are estimated to be approximately EGP 50bn, and the settlements to be made at the end of September will determine savings achieved at the beginning of subsidy reductions.
Dimian noted that the Ministry of Social Solidarity is moving swiftly to develop support programmes and improve social security pensions after a 50% increase in allocations was stipulated in January.
He said the number of beneficiaries for social security pensions rose to 3 million households. Targeting mechanisms have improved while new programmes have been added, including pensions for those above 65 years of age and the disabled, programmes for street children, and school meal programmes. There has also been an overall improvement of the quality of meals provided to students in schools.
Dimian added that the government cares about the structure of energy and electricity subsidies, noting the new constitution stipulated an increase in education and health allocations over three years to FY 2016/2017. The constitution also stipulates an improvement in the quality of life for Egyptian citizens and that savings achieved by the new supply goods system be injected into other programmes.
Dimian said that the ministry’s programme to bridge the funding gap will be changed with the flow of tourism, exports, indirect investment rates in the financial market, and government treasury bills and bonds. These factors will help shrink the funding gap alongside economic reform measures and the economic growth expected from attracting direct and indirect investments.
Dimian stated that the funding gap ranges between $10-11bn, with the government possibly resorting to the international market to fill the gap or locate international sources of funding.
He added that the government has put forth several scenarios for offering dollar bonds to global markets by entering into the markets without a financial guarantee. He added that this may also happen by producing one in cooperation with a country that enjoys high credit to cover the principal, the interest, or both.
He also added that those guarantees will determine the decision to enter, the value, and all other choices to be made. There are no objections to any of these alternatives, Dimian said, adding: “We can go to one of our sister states for collateral if they express a willingness to enter as a guarantor.”
Regarding the Deauville initiative, Dimian said that it is a regional initiative, and that through it, relatively limited resources are available in comparison to Egypt’s needs.
He pointed out that Egypt is currently participating in meetings in Berlin as a member of the initiative in order to study the extent to which Egypt can benefit.
On the subject of Egyptian cooperation with the International Monetary Fund (IMF), Dimian said the government is waiting for an economic summit to be held in January or February 2015. During the summit, the IMF will visit Egypt to hold consultations and exchange opinions relating to the economy.
He denied ministry intentions to grant establishments the right to issue bonds and bills for implementing projects, saying that fiscal decentralisation takes time to absorb bonds and bills. He said that the precautionary measure will help avoid the crises currently experienced by Columbia and several other Latin American countries.
Dimian said that the government is committed to apply international standards in measuring GDP as well as inventory traffic. “Changing measurement methods unnecessarily harmed efforts to track the economy in recent years,” he said.