Implementation of the new income tax law is yielding positive results, but might need some fine-tuning, writes Sherine Nasr For years, relations between the Tax Authority and taxpayers have been characterised by mutual mistrust and lack of confidence. This might soon change however, with the new tax income law which has now come into effect after it was ratified by parliament last year. The government anticipates that the clearly articulated texts of the law will leave little room for the habitually conflicting interpretations between the Tax Authority and taxpayers. A first assessment of the law which was conducted by the Ministry of Finance two weeks ago indicated positive results according to Minister of Finance Youssef Boutros Ghali. The ministry scanned the income tax declarations submitted within the March deadline by taxpayers, along with the expected revenue. Contrary to the projections predicting that tax revenues would drop by at least 40 per cent during the first three years of the new law's implementation, the revenue actually increased. March is the deadline for individuals to submit their reports according to the new law, while April is the deadline for judicial bodies. Ghali told a press conference that the Tax Authority has received over two million declarations so far compared to approximately one million last year. "This is a 100 per cent increase," Ghali said. "Revenues jumped to LE1 billion for the same group, (of individual taxpayers) compared to LE400 million last year. This amounted to an increase of at least 224 per cent." The minister described taxpayers' response to the new law as "extraordinary" saying that it signals "the start of a new era where taxpayers are convinced that they are partners [with the Tax Authority] and not its foes." The new law's inauguration was accompanied by a massive promotional campaign targeting what is acknowledged to be a deeply-rooted scepticism on the part of taxpayers towards the government. "We were keen to investigate the international criteria for applying the law," Ghali said. Voluntary reporting by taxpayers is encouraged by the new law which does not take issue with what is written in tax statements, on the premise that what the taxpayer states is his income, is true. "This has made some [previously] invisible clients visible to us. We can now have a more accurate estimate of the number of clients who should apply for taxes every year," Ghali said. However, Ashraf El-Arabi, a senior taxation advisor to the minister of finance says this does not mean that declarations that submit discrepant or incredible figures will be accepted at face value. "We have one instance where a doctor claimed he had made LE4 as net profit for the whole year." While declarations including such figures are accepted in principle by the Tax Authority, they are submitted to further scrutiny. "Bargaining is not in the deal any more," El-Arabi says. He adds that while there is no haggling, a computerised system will still sift through the declarations and single out those which might raise any suspicion. "Once evasion is proven, the law will be very firmly applied," El-Arabi said. Some 39,000 tax payers have failed so far to submit their applications in time for the March deadline. "We will go after them, starting with the big clients and ending with the small ones. There is no room for excuses," Ghali warned. However, auditing firms are reporting an unprecedented willingness by clients to submit reports of their income earned over the past year. Abdullah El-Adli, a tax consultant at Price Waterhouse Coopers, the international auditing and accounting firm says that many of his clients "are willing to cooperate and submit accurate reports by the end of this month". But he also cautions that there are "problems in implementation and questions that arise which even the Tax Authority employees themselves cannot adequately respond to." According to El-Adli, one reason is that the new law includes "specialised concepts that are a part of the international law at a time when there are neither specialised units within the Tax Authority, nor trained staff, that can correctly apply such concepts." Such a situation could "foster misinterpretation or even corruption in implementing the law." El-Adli suggests that "further coaching" should be undertaken to train employees who are responsible for implementing the law. The new income tax law has also broadened the taxpayers' base by including professions that did not submit to the old income tax law, such as skilled labour. "Estimates show that the income tax will contribute around LE40 billion to the state coffers every year." says Ghali. "With the smooth and steady implementation of the law, the amount is expected to increase."
