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What if Egypt replaced its General Sales Tax (GST) with the Value Added Tax (VAT)?

ECES weighs on the possible consequences of applying VAT or disregarding it and strengthening GST.
Scenario 1

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.

Scenario 2

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.

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