The Federation of Egyptian Banks (FEB) declared its definitive rejection to applying or registering under the Value-Added Tax (VAT) Law, according to Amr Tantawy, board member of FEB and managing director of Misr Iran Development Bank (MIDB).
Tantawy told Daily News Egypt that the banks believe they do not fall under the VAT Law; therefore, they are not required to register for it. He added that the same case applies to the sales tax, as banking transactions are legally exempt from the sales tax.
He pointed out that the FEB sent a memorandum to the Central Bank of Egypt (CBE), detailing the banks’ rejection of the registration, in preparation for settling the issue with the Ministry of Finance.
In December 2015, Daily New Egypt disclosed that CBE governor Tarek Amer had officially informed the Ministry of Finance that the banks operating in the local market had refused to register under the VAT.
In September 2016, the Ministry of Finance had decided to exempt banking services offered by banks operating in the local market from VAT. The banks had demanded that the ministry clarify its position, wondering if that exemption includes the application and registration for VAT.
Almost two weeks ago, Mahmoud Khalifa, head of the research department at the Egyptian Tax Authority, said that the authority is currently working on framing the executive regulations of the VAT Law, so as to determine the banking and financial services subject to the tax.
He added that the VAT draft law had been sent to the CBE for discussion, before submitting it to parliament for approval, pointing out that they had studied the Banks Law No. 88 of 2003 with regards to the banking services offered by banks.
Khalifa warned that banks that did not register under VAT can be exposed to penalties.
He said that a number of activities offered by banks are subject to the VAT, adding that the banks were granted an additional period of time to discuss the application of the VAT with the CBE. Khalifa noted that the tax authority will hold a meeting with the FEB later on.
Ruqaya Riad, a legal adviser at the FEB, said that banking transactions should be exempted from VAT—similar to the sales tax, which was replaced by the VAT.
She told Daily News Egypt that the FEB has drafted a memorandum detailing the banks’ rejection to registering under the VAT, finally and decisively, adding that this is not negotiable. The memo was submitted to Amer, to inform the Ministry of Finance and the tax authority.
The Egyptian Tax Authority had previously demanded that banks operating in the local market should register under VAT as a first step towards obliging them to pay the tax. The banks, however, had rejected the tax authority’s demand, especially as there is a dispute between the banks and the authority over the description of banking transactions.
Riad said that the authority considers the rent of safety deposit boxes at banks for customers as a banking transaction, and demanded that the VAT be applied to it. This service is one of the most prominent and basic services offered to bank customers, and it should be exempted from taxes, according to Riad.
She added that the banks refused to register under the VAT, so as to avoid opening the door for fresh disputes between the banks and the authority.
Riad pointed out that the Egyptian Tax Authority had previously forced two banks to register for the sales tax, prompting these banks to file a lawsuit against the authority. The registration for the sales tax was cancelled by a court. She noted that the same thing will happen again, in case the authority insists on registering the banks under the VAT Law.