Raising taxes may make sense for the government, but consumers fear that such moves will trigger price hikes on other goods, Mona El-Fiqi reports In an attempt to reduce the state budget deficit, the government decided to impose a new tax on cement and to raise taxes on steel. On 19 May, the People's Assembly Budget and Planning Committee approved a five per cent sales tax on cement, which is currently taxed under a flat rate standing at LE1.4 for imported cement and LE2.5 for locally produced cement. The supplementary budget report also included a rise on steel taxes from five to eight per cent. The government announced that the funds generated from this hike would permit the government to pay for much needed public services, such as improved healthcare. According to Finance Minister Youssef Boutros Ghali, the deficit projected for the next fiscal year would be 7.9 per cent of GDP, which would make it difficult for the government to provide quality public services for a rapidly growing population, making the new taxes "a logical public policy decision". But while the government may have reasons for raising the taxes, consumers fear that price rises will follow on all products. Mohamed Adel, an employee, said that in response to the increase of taxes on steel, cement and also cigarettes, he expects all prices to go up. "Traders always grab any chance to raise prices," he said. "They are encouraged by the uncontrolled market." Consumer fears seem well founded. Experts confirm that the consumer will ultimately be the one paying for any tax increase. Ali Moussa, chairman of the Cairo Chamber of Commerce, said that although the new taxes are placed on industry, they would be passed on to traders, who will pass them on in turn to consumers. Moussa said he is not against new taxes on cement and steel, but he blamed the government for not clarifying how revenues from this tax will be directed towards healthcare. "How can the government guarantee that the funds generated by the tax go to improve healthcare services?" he asked. Moreover, there is talk that the government is also considering a rise on the fees imposed on the raw material used in manufacturing cement, currently standing at LE27 per tonne. When asked why the government chose the cement industry for imposing new taxes, Moussa explained that it believes that the cement industry causes pollution more than other industries, so it has to pay higher taxes. Moussa said that the five per cent tax rise would cause a rise in cement prices ranging between LE20 to LE25 per tonne, which he deemed "not too much". Hisham Ismail, an engineer at a construction company, concurred. "Until Monday, 24 May, the price of cement was sold at LE500 per tonne, as it used to be before," said Ismail. Prices are expected to rise at the beginning of June, when the new tax is applied. "Then the final cost price will increase and that will definitely hurt demand in the construction sector," said Ismail. Construction has boomed despite a global downturn, fuelled by demand to meet housing needs. Demand for cement rose 25 per cent last year, and the government has been offering new manufacturing licences to boost capacity to meet local demand.
