Approval of the VAT is a historic achievement

On Monday, the House of Representatives passed the proposed value-added tax legislation.

The only amendment to the draft legislation was proposed Sunday by the Finance Ministry, which was to reduce the rate to 13% in the first year of implementation, whereby the rate will increase to 14% from 2017. The parliament also increased penalties for tax evasion to help enforce the VAT’s implementation. Fifty-six goods will be exempt from VAT. The implementation of the legislation was a condition to receive $12bn in financing agreed upon with the International Monetary Fund (IMF).



The VAT will replace the general sales tax in order to include previously excluded segments of the nation into the tax base, as well as simplifying the tax code. This is also expected to help target the informal sector, non-residents such as tourists, or rural areas in which tax compliance was less forthcoming. Implementation of a VAT is expected to help reduce the budget deficit by 1-3% and amount to 1% of gross domestic product in tax collection, equivalent to EGP 20bn in fiscal year 2016-2017. It is also expected to increase inflation by 1%.



Mission chief of the IMF for Egypt Chris Jarvis praised the government’s decision to implement the VAT regime, stating that “the VAT is a modern and efficient tax. It will help increase government revenues, and reduce the budget deficit. It will also enable the government to collect more taxes from better off people and free up more resources for social spending for the poor and vulnerable groups.”