Sherine Nasr traces the steps which make more taxpayers ready to comply Two years have passed since a new income tax law was implemented, and surprisingly the honeymoon between the Egyptian Tax Authority (ETA) and taxpayers is not yet over. In fact, more citizens are considering full compliance voluntarily, making figures for tax revenues quite impressive. Tax returns until 20 March had exceeded one million, which indicates a 35 to 40 per cent increase compared to the same period last year. A rush to pay taxes typically occurs during the last three days of March, which is the deadline for submitting tax returns for individuals. Despite criticism and scepticism of its value, a concentrated media campaign promoting voluntary compliance, trust and transparency, seem to have borne fruit. Although the message changed from "we trust you, go ahead" at the beginning of the campaign two years ago to "get to it or you'll be penalised" early this year, the built-in trust in the new law makes all tax returns valid and trustworthy, giving the tax society an invaluable principle to build on. While it is typical to still meet a well-educated person who is wondering whether he should pay taxes on land he owns, there is no doubt that Egyptians are slowly shifting from loathing the word "tax" to being more open to the idea and complying. Important as it may be, the media campaign was but one tool for delivering the message, but more effective still were the changes taking place at the ETA since the new law was issued in 2005. "Since it was impossible to just sit and wait for people to comply, we adopted a positive attitude and decided to penetrate civil society in a systematic and efficient manner," noted ETA head Mahmoud Mohamed Ali at a news conference on 27 March. One step was to establish tax service units in potential taxpaying business organisations, including the Egyptian Chamber of Commerce, the Egyptian Federation of Industries, unions for contractors and those working in the tourism sector. "These are service providing units, not simply tax collecting bodies," explained Ali. "They answer questions, advise, receive tax returns and collect taxes. In short, these units have all the capabilities of the tax authority and act as such." Ali believes that the move has helped consolidate trust and understanding between the business society and the tax authority. "Operating from within the federations and unions has been a wonderful experience." he said. "We gather first-hand information, the ice is melting and decisions are taken based on realities not assumptions. No healthier atmosphere between taxpayers and tax collectors can be found." Ali added that decisions taken by these units are binding to the ETA. Previously, a Large Tax Payers Centre (LTC) was established to handle the tax returns of major taxpayers, ranging from 3,000 to 5,000 tax portfolios. These represent almost 70 per cent of total private sector tax collection. At the same time, extensive discussions of the new law and means to comply were organised by the ETA, in the form of seminars and lectures for traders, manufacturers, professionals, local councils, syndicates and even social and sports clubs. All this has helped settle hundreds of tax disputes at different stages of legal action, a procedure which was both time and money consuming. Another major procedure which is currently being formulated is to include accountants as a third and indispensable party of the taxpayer- tax authority relationship. According to Ali, the ETA is in negotiations with major accounting firms which are directly connected to the authority's website for more convenience and simultaneity. Accountants applying techniques which comply with the ETA's inspection formulas will be registered as accredited accountants. "Tax returns delivered by these accountants will receive minimal inspection by the authority," said Ali. Although the practice has sparked some heated competition among accounting firms, the ETA head confirms that the authority is willing to deal with all accountants and firms equally. "We addressed firms with the largest taxpaying clients first to begin with a large base, but cooperation with every firm or accountant is also guaranteed," assured Ali. "Accounting firms have assumed their responsibilities as tax auditors according to the provisions of the new," confirmed Abdallah El-Adly, from PricewaterhouseCoopers (PWC) Egypt, an international firm providing services in the fields of tax, human resources, transactions and crisis management in some 149 countries. El-Adly continued that the role of the ETA is "still in the testing phase to prove the success of the spirit of the new law." But the biggest challenge for the ETA still lies ahead, namely to identify all would-be taxpayers and compel them to pay their dues. "Despite all positive indicators, there is still a big gap between those who actually submit a tax return and those who should submit one," noted Ali. He added that tax evasion remains an unresolved problem which should be dealt with earnestly and speedily. Studies in other countries, mainly developing ones, revealed that the submission rate of tax returns should range between 40 to 60 per cent of the country's population. In Egypt, figures reveal that out of at least 15 million who should submit tax returns, six million are registered ETA but only 2.5 million submitted a tax return in 2006. "This situation cannot continue," warned Ali. "Tax payers will not be in a less privileged position than tax evaders." While many cases were reported to the Prosecution General to take necessary measures, this came after many ultimatums to tax evaders to pay their dues, he said. "They mistook our patience and willingness to wait for them to submit returns voluntarily for lack of commitment. They are wrong," asserted Ali. According to the law, those who do not submit their tax returns by the deadline of 31 March pay a fine ranging from LE2,000 to LE10,000. Fraudulent tax returns carry a penalty of six months to five years imprisonment, in addition to a fine equal to the value of the tax. Nevertheless, Ali believes that tax revenues this year will meet the expectations of the Treasury, which are LE61.8 billion in income tax revenues and LE29.5 billion in sales tax revenues for 2006-2007. "Ambitious as these figures may be, the ETA will further surprise the tax society with well-studied plans to collect taxes," stated Ali. "A drastic change has started and will continue."
