Against all odds, a good tax season is unfolding in Egypt

Although economic activity has slowed since the 25 January Revolution, taxpayers are keen to submit their tax returns on time

Against all odds, a good tax season is unfolding. Such has hardly been the habit of taxpayers who are known to be last- minute people. At this time of the year, the Egyptian Tax Authority (ETO) would normally urge the tax society in Egypt to comply with the deadlines.
But observers have underlined that the process is going smoothly against all the economic odds of the past two months.
"The activity in tax offices is unchanged this time of the year as we can hardly notice a drop in the tax files submitted so far," said Makrama Zaher from ETO.
Abdallah El-Adli, a legal accountant from Waterhouse Price Coopers, shares Zaher's opinion.
"Accounting bureaus are rushing to conclude budgets and make up for the time lost in the latest events," said El-Adli, adding that tax revenues for this year will hardly be affected because they represent the economic activity during the past year.
According to Egyptian law, tax files are presented starting from January. The deadline for natural persons ends on 31 March, while corporate entities are due on 30 April.
According to Ahmed Refaat, head of the ETA, it is still premature to judge the final number of tax files submitted. However, "indicators are so far very good and we are positive that tax revenues for this year will not be negatively affected by the difficult situation following the revolution," he said.
This year, the target for tax revenues is ranging from LE173 to LE180 billion. "I believe this target will be met," said Refaat.
Although the past two months were characterised by political, economic and social unrest, indicators have shown the tax target for February has been met, according to Refaat who underlined that he does not expect a drop in tax revenues for this year.
Last year, tax revenues hit LE148.77 billion, surpassing the target revenue of LE121 billion and registering an increase of 12 per cent compared to the 2008/09 tax revenues.
In an attempt to facilitate the taxpaying process in a time of economic turmoil, a decision by the Higher Council of the Armed Forces was made earlier to allow taxpayers to pay their taxes in three, interest-free instalments, fully due by the end of June.
Astonishingly, the majority of the taxpayers preferred to pay in cash and very few took advantage of the facility offered.
"More surprising still is the fact that a number of major entities offered to pay their dues in dollars and in advance as a means to help the country step out of the present situation," said Refaat.
Of all the taxpaying society, the Large Taxpayers Centre is perhaps the most significant.
According to Mohamed Tarek, head of the centre, large taxpayers consist of 2,000 major corporate entities responsible for delivering almost 80 per cent of the total tax revenues in the country. "Last year, large taxpayers contributed LE100 billion of revenues. We expect a similar positive performance this year as the majority of the companies have complied until last February, and no significant drop in their revenues can be noticed," said Tarek.
The full impact of a slowed down economic movement will, nevertheless, be fully weighed next year.
"This is when we expect a major drop of at least 30 to 40 per cent in tax revenues," said El-Adli, who explained that a good portion of revenues are contributed by major sectors and entities that have been hit the most. These include the tourism sector, the Suez Canal, the Egyptian General Petroleum Corporation (EGPC), and the Central Bank of Egypt (CBE).
"It is hard to ignore the fact that almost every single economic activity has been negatively affected. It is not clear when businesses will resume activity while foreign initiatives to invest in Egypt have come to a halt," said El-Adli.
The Egyptian Custom Authority (ECA) is no exception. Custom tariffs may also drop significantly, and plans ensued by the authority to facilitate procedures as a means to increase the trade movement may not reach their full potentials.
According to Ahmed Farag Souedi, head of ECA, revenues of LE15.5 billion were the target for this year. "It is premature to decide if this target will be met," said Souedi.
According to Refaat, the re- examination of major tax files which have been underway since last June will definitely help increase this year's revenues. "One of the cases ended by paying LE11 billion to the authority," he said.
Meanwhile, proactive initiatives by legal accountants will soon be presented to the minister of finance with an aim to increase tax revenues.
"Among the suggestions is to impose a two per cent tax on capital market profits. Enlarging the taxpaying society by enrolling more categories is another option," said El-Adli.
The full image of the tax scene in Egypt will be complete by next May when tax files by taxpayers, natural and corporate entities, have been submitted.
"In the meantime, we are working closely with the taxpaying society to encourage compliance. We have reassured our clients that the difficult economic situation in 2011 will be taken into account next year," said Refaat.