Recent statements by Jihad Azour, director of the International Monetary Fund's (IMF) Middle East and Central Asia Department, praising Egypt's economy as an IMF delegation was visiting Cairo mainly focused on Egypt's success in achieving high rates of growth while implementing fiscal and monetary reform as dictated by the IMF. This praise included of higher tax revenues, as per statements by Minister of Finance Amr Al-Garhi, who said that net tax revenues for 2016/2017 had amounted to LE464.4 billion compared to LE352.3 billion in the previous fiscal year, a 31.8 per cent increase. This increase is notable when compared to increases in tax revenues for 2015/2016 at 21.07 per cent and greater for proceeds originally projected for the 2016/2017 budget at LE433.3 billion. But a closer look at the sources of these revenues raises questions about the fairness of the government's tax policies. While the Ministry of Finance has not released figures on last fiscal year's tax revenues, the most recent monthly financial reports published in mid-October include tax revenue figures for the 11 months from July 2016 to May 2017 from a variety of sources. Out of the LE358.035 billion in net revenues over these 11 months, value-added taxes (VAT) on goods and services have the highest yield at LE170.335 billion. They are followed by taxes on income, profit and capital gains at LE122.53 billion, then property taxes at LE26.689 billion, tariffs at LE23.92 billion, and “other” taxes at LE14.561 billion. The monthly financial report does not identify the “other” taxes, but internal figures from the Ministry of Finance viewed by Al-Ahram Weekly show them to be “revenues from movable capital from the Central Bank of Egypt and other entities, shares of local government in taxes on movable capital, and taxes on returns on treasury bills.” The relative weight of the different taxes in the overall tax revenues shows VAT to be the prime source of indirect taxation, while income tax was the main type of direct taxation collected directly from taxpayers. The taxation policies can be understood better when the relative weight of the different taxes for the 11 months of 2016/2017 are compared with the averages of the four years between 2009/2010 and 2014/2015. According to the Ministry of Finance, income taxes constituted the main source of tax proceeds at 45 per cent, compared to 39 per cent from goods and services. Abdel-Moneim Mattar, director of the Tax Authority, told the Weekly that the main reason for the hike in indirect taxes and their relative weight was the new VAT law. As part of the austerity measures imposed by the IMF, the government ratified a VAT law last year replacing the sales tax and raising the value of the VAT tax from 10 per cent to 13 per cent in 2016/2017 and then to 14 per cent this fiscal year. It also applied the tax to services that were previously exempt. Other measures have included floating the Egyptian pound in November 2016, which seriously depreciated the currency and resulted in inflation of more than 30 per cent. Hani Al-Husseini, a member of the Egyptian Taxation Association, a professional association, believes current policy is focused on quick collection at the expense of tax justice. “Indirect taxes are a blind tax that ignores disparities in incomes and wealth and imposes the same burden on everyone who buys goods irrespective of their ability to pay,” Al-Husseini said. He said that indirect taxes could be a quick source of revenue since they were collected and delivered to the government immediately unlike other taxes that are collected at specific times during the year. However, income taxes are more progressive, he said, since they are based on a person's ability to pay. “Tax justice criteria require a reliance on income taxes and not those on goods and services,” he said. “The current situation indicates an unfair bias and a simple desire to collect taxes quickly.” While it has increased taxes on goods and services, the government has also taken steps to decrease its reliance on income tax revenues. It suspended the capital gains tax on the stock exchange which began in 2014/2015 and then extended the freeze by another three years until 2020. In March 2015, a few days before the Sharm El-Sheikh Egypt Economic Development Conference, it reduced the maximum rate of income tax for individuals and companies to 22.5 per cent down from 25 per cent. The directive also eliminated the special tax on the highest incomes that had been applied for three years. Tax revenues from goods and services rose by 38.1 per cent, while income taxes grew by 29.3 per cent. “The large increases from other taxes, mainly inter-government transactions, are likely the result of paying tax arears from previous years,” Al-Husseini suggested. Mattar believes measures taken by the state to ensure social justice in applying VAT laws are enough to guarantee tax justice, despite a reliance on indirect taxation. They are measures based on “schedule goods”, which are goods that have special tax rates that depend on their social necessity and goods exempt from taxes altogether. However, Al-Husseini disagrees, saying that “these measures do not change the essence of the unfair taxation and only slightly alleviate the burden.” The writer is a freelance journalist.
