In this scenario, the government applies the VAT in a transparent and just manner:
- Tax base expands, which leads to an increase of LE 30 billion in government revenues in FY2015/16 (1).
- Non-basic goods and services witness a one-time increase in prices with an expected increase of 2.6 percent in inflation (1).
- An important part of the informal sector becomes formalized through easier processes of billing and refund incentives.
- Double taxation is avoided encouraging more tax compliance.
In this scenario, the government does not apply the VAT and instead strengthens the current GST:
- GST legislative reforms slightly increase tax revenues by providing incentives for compliant taxpayers and imposing harsher penalties on tax evaders.
- Inflationary expectations are limited.
- Informal sector continues to expand as well as the cash economy.
- Non-uniform tax rates on different goods and services lead to complicated tax administration.
Find more at: http://www.eces.org.eg
Image via Shutterstock/Rawpixel