Minister of Finance, Amr El-Garhy, said that 90% of food commodities are to be exempted from value-added tax (VAT), which will be applied after the approval of the House of Representatives.
The minister added during a press conference at the ministry on Tuesday that the inflation resulting from imposing the tax will be very limited, especially on low- and limited-income citizens. “High-income citizens pay more, as the tax relies on consumption size,” he explained.
The minister pointed out that 52 commodity groups are exempt from VAT.
El-Garhy said the resulting inflation will range between 0.5% on low-income citizens, 1.5% on societal segments with higher income, and up to 2.3% on citizens with the highest income.
“VAT is currently essential for Egypt in order to reinforce the state’s revenues,” the minister pointed out, saying that VAT ranges between 18-20% worldwide, while in Egypt it will stop at 14%.
The parliament is currently examining the final version of the draft VAT law. The government placed its bid on VAT to increase revenue and curb the budget deficit.
Furthermore, the government expects an increase in sales tax revenue by EGP 30bn this fiscal year, compared to last year, as a result of implementing a value-added tax.
VAT is a type of consumption tax that is placed on the difference between production cost and the price at the final sale point on both imported and domestic products. Shifting towards a VAT-system will contribute to expanding the tax base to all goods and services, except for those exempted by the law.
El-Garhy said that VAT is applied in more than 150 countries. “It fixes the distortions in the old sales tax law,” he noted.
The value-added tax will raise the efficiency of tax administration. The minister added that wages and debt services acquire 55% of the state’s public budget. He emphasised the state’s desire to support low income citizens and deliver subsidies to those who deserve it.