Salah El-Amrousi says the new tax law is biased against the poor The government has staged a tax reform with all the trappings of a media fanfare. The reform, we're told, will allay the tax burden for all classes of society. It would increase tax relief for the poor and the rich alike. However, upon closer scrutiny on finds the claims are unfounded. The government would have us think that the loss in tax revenues will be offset by the growth of the economy as a whole. In actuality, the government is offsetting the fall in tax revenues by increasing taxes of other forms. In all, the beneficiaries seem to be high-income individuals and companies. The new income tax law breaks individual incomes into three brackets. The income bracket of LE5,000 to LE20,000 is subject to a 10 per cent tax, that of LE20,000 to LE40,000 is subject to a 15 per cent, and that of over LE40,000 is subject to 20 per cent. Previously, higher income brackets were taxable by up to 40 per cent, which means that the income tax has been roughly slashed by one half. According to the new law, if your income is around LE4,000 a month, you're subject to the same tax treatment as someone making millions. This may seem odd, but -- to be fair -- even the old law was already biased against low- income people. Other countries have more even-handed systems. In the US, income is broken into four categories (according to family status), and every category includes five brackets allowing for a more nuanced differentiation. For example, income tax for single people is divided into categories covering incomes from $22,000 to $250,000, with the tax rate ranging from 15 per cent to 40 per cent. Tax rates are adjusted annually, according to, among other things, inflation and the cost of living. For companies, Egypt is now applying a unified tax rate of 20 per cent. The same rate is applied equally to family businesses and corporations, natural as well as legal entities, companies making a few thousand a year as well as those making billions. Again, this is not the norm in other countries. In the US, companies are categorised according to income, with the tax range of 15 per cent to 35 per cent applied progressively to companies making $50,000 to $10 million a year. Are we getting more liberal than the Americans? The halving of taxes benefits high-income people and companies, without any guarantee that the extra cash would be directed to investment. In all likelihood, the income released from a loosening in taxation would be used in luxury consumption or transferred abroad. The new tax system favours the rich, although the government would claim otherwise. It says that the system would help low-income groups, because the personal income deduction has been boosted to LE5,000 from its previous level of LE2,000-LE3,000. For each household, extra deductible income has been increased from LE2,000 to LE4,000. Total exemptions per household have thus doubled, more or less, from an average of LE4,000-LE5,000, to approximately LE9,000. But the favourable treatment to people supporting spouses and children has been abolished. The former "exemptions for family responsibilities" clause has been struck out of the new law. Finance Minister Youssef Boutros-Ghali says the government should look for other means of helping poor families than the tax system, while also claiming that modern tax systems have no deduction allowances for supporting family members. Wrong again, the US tax system involves exemptions for family support, including children in-law. The new law restricts tax exemptions for employees, including long-standing ones. The new law limits deductions related to jobs of a hard nature (up to LE480), the representation allowance (up to LE2,500), and for production incentives (up to 100 per cent of the basic salary). The total exemption for the three allowances mentioned above is now limited to LE4,000. The old law included deductions for housing benefits. In the new law, all benefits are lumped together with salary and taxed. The tax exemptions for low-income families, now standing at LE9,000 at most, is no improvement over the old system, and this is in pure monetary terms. Once you take inflation into account (50 per cent to 70 per cent between 1997 and 2005), the new system is actually harsher on low-income households. To keep the exemptions at the same level, the government should have boosted the exemptions per household to anywhere between LE13,000 and LE15,000 annually. For the self-employed, the new law takes away the personal deduction of LE4,000, bringing deductible income down to LE5,000, a worse tax treatment than that received by the salaried part of the population. This discrimination between the salaried and the non-salaried is blatant. One tax expert explained it by saying that salaried people have no chance of evasion and deserve lenience. Hence, the non-salaried as treated more harshly simply because they can evade. Labour unions have objected to the new law because it scraps benefits previously granted to the self-employed. The law has abolished the 15 per cent deduction set aside for professional-related expenditure. The deduction on contributions to pension and insurance funds has also been cancelled. Deductible business-related expenditures have been cut from 25 per cent to 10 per cent. All self-employed professionals, regardless of the size of their operations, now must submit regular bookkeeping, not just receipts. This is not a problem for companies of regular size, but for small operations, the additional cost could be prohibitive. As I mentioned before, the new law treats corporations, medium-size companies, and family businesses on equal terms. In the case of private limited companies, the partners can no longer benefit from family-related deductions. Because the taxing system includes only a limited amount of categories, small businesses, which are the overwhelming majority of companies, are at a disadvantage. Having amended the tax system, the government proceeded to increase the price of amenities such as water and electricity, and is talking about changing the subsidies system from in-kind to monetary form. Such policies are likely to unleash another wave of inflation, which would again hurt the low-income groups even more. The tax reform we've just had is nothing short of a revolution -- a revolution by the rich against the poor.
