The Ministry of Finance decided to exempt banking services provided by banks operating in the Egyptian market from the value-added tax (VAT). However, financial banks call for further clarification on the matter and whether the decision will exempt banks from paying VAT or only registration.
The Minister of Finance, Amr Al-Garhi, said in a statement last week that the ministry has completed the VAT draft law, which is to replace the current tax law on sales.
The ministry exempted a group of 52 goods and services from that tax, including banking transactions carried out by the banks.
The Ministry of Finances estimated that the VAT would bring EGP 10bn in revenues to the new budget but this exemption would reduce that figure.
According to legal adviser to the Federation of Egyptian Banks (FEB) Ruqia Riad, exempting the banking transactions from the VAT comes as a response to banks’ request. This is the same as exempting them from the sales tax, which is substituted by the VAT.
She told Daily News Egypt that banks refused to register for the VAT and provided an official memorandum to the governor of the Central Bank of Egypt (CBE), which the CBE, in turn, presented to the Ministry of Finance.
The Egyptian Tax Authority has demanded that banks operating in the market register for the VAT. However, banks refused out of concern that they will be forced to pay VAT on services rendered to their customers, especially in light of a prior dispute between banks and the authority on the definition of those services.
Riad highlighted an example of these disputes, in which the authority did not consider safe deposit locker rental to the customers’ banking service and demanded banks to pay tax on that service. Renting a safe deposit locker is an essential and prominent service that banks provide to their customers, what makes it eligible to be exempted from taxes.
She added that the banks once again refused to register for the VAT, to avoid more disputes with the Tax Authority.
The authority obligated two banks to register for the sales tax, the two banks then set up a lawsuit to challenge that decision. The court ruling was in favour of banks and the compulsory registration was cancelled. The same situation will repeat with the VAT if the authority insists on obligating banks to register, according to Riad.