Drastic amendments to the sales tax law await, writes Sherine Nasr Major amendments to the sales tax law are to be introduced by the Ministry of Finance in preparation for detailed discussion by the People's Assembly in its current session. According to Mahmoud Mohamed Ali, head of the Sales Tax Authority, the amendments are meant to find solutions to problems that have persisted the past 15 years. Ali believed the amendments will bring the law into its final shape as was meant when it was introduced in May 1991. "The amendments represent a badly needed step in applying the law as was intended," Ali said. "Facilitating procedures and providing solutions to some long-standing problems are also in the deal," Ali added during a recent meeting held with the Egyptian Junior Business Association. He said that once the amendments were approved and implemented, the present sales tax would eventually become a value added tax, a broader and more comprehensive term. "But re-naming the tax is not the biggest concern right now. More important are the major changes these latest amendments are expected to bring." In its elementary form, a 10 per cent sales tax was initially supposed to be imposed on goods. However, when the tax came into effect, goods and services were charged according to different categories. In the present law, there are several categories of sales tax imposed on goods and services: a five per cent sales tax on production inputs; 10 per cent on the majority of commodities; 25 per cent on certain services and between 35 to 45 per cent on luxurious imported goods including, among other things, vehicles with certain engine capacity, perfumes, cigarettes, accessories and pet food. "A major amendment will attempt to group all this into one or two categories at most," Ali said. Too many categories previously led to confusion in defining commodities. Although Ali declined to define the categories that would encompass all goods, commodities and services in the new law, experts believe it will be a difficult endeavor. According to the present law, the tax exemption ceiling for importers and manufacturers is put at between LE54,000 to LE150,000 for traders. However, the new legislation aims at raising the exemption ceiling so as to exclude a wider category of small businessmen. Although Ali did not specify a certain ceiling for exemption, he said the idea behind the move was clear. "We need to lift the burden off small and medium enterprises. In the meantime, the authority will be free of the burden of collecting taxes and supervising tax files of clients who do not add a significant plus to tax revenues annually." Some experts have criticised the tax amendment, saying the government will be encouraging illegal industries that operate without a license. But Ali argues that these entities are so small they hardly have a system for accounting or a sales department, nor can they hire lawyers. "It would be more convenient for them and us as well to have them excluded," said Ali. Compensating for the drop due to excluding small businesses will be made by including a wider category of professions and services. Therefore, the new legislation is expected to include the majority, if not all professions, including plumbers, doctors, lawyers, hair dressers and carpenters as well as a wider scale of services not included in the present law. How the entire market will be scanned for so many professions and how to survey millions of sales tax files and cases is not yet clear. However, the authority claims it has developed the potential and human expertise to do the job. According to Ali, the government first thought of applying a sales tax in the mid-seventies. A gracious 24 per cent of fiscal deficit, a 30 per cent inflation rate and an incredibly fluctuating exchange rate were serious indicators that the coffer was in dire need of direct revenues. "However, at that time, the financial set-up in the country was not mature enough nor did it have the required mechanisms to collect such a tax. The business community, in the meantime, was not ready to accept it. Thus, the idea was shelved." It was not until the eighties when a sales tax was first implemented over three phases. The first included manufacturers and exporters, followed by wholesalers, then retailers who are to be taxed once the latest amendments come into effect. "The sales tax has become one of the major budget earners to the country with LE25 billion of annual revenues which are expected to increase," Ali said. A major reform in the sales tax law is the suggestion to allow export production inputs into the country without charging them. "Instead of collecting the tax on production components in advance, it will be collected later as tax payers submit their account for the year," Ali said. The move was supported by the majority of the business community. "The reform marks a new era where mutual trust is the rule between the authority and taxpayers," Ali said . Earlier this year, a similar reform was enacted to give a boost to national industry, the Ministry of Finance having decided to exempt capital goods of sales tax. More encouraging is a decision to allow financial leasing to be sales tax free. The suggested amendments are expected to raise heated debate among the people's representatives and in the business community in general. However, Ali stressed that the authority was determined to continue with its policy which aims at voluntary compliance of the law.