Amidst a hearty welcome from society, experts remain sceptical about the new tax law. Sherine Nasr reports Last week, President Hosni Mubarak signed the final version of the new income tax law after it was ratified by the People's Assembly. Due to be enacted on 1 July, no laws prior to this have elicited quite so much debate amongst the members of parliament. Discussions of the new law's pros and cons were held during at least 19 sessions. According to Youssef Boutros- Ghali, minister of finance, the new law is based on a number of important pillars. The most important of which is to reduce taxes by half in an attempt to encourage investment and to unify the tax treatment among companies with different kinds of ownership and among different players in the market, whether these are traders, industrialists, importers or exporters. One of the main groups who will enjoy a substantial tax reduction is employees. The ceiling for tax exemption for employees has been raised from LE2,000 to LE5,000. Moreover, only a 10 per cent tax will be imposed on employees with an annual income ranging from LE5,000 to LE20,000 while there will be a 15 per cent tax on incomes up to LE40,000. In the meantime, companies and cooperatives will be charged a unified 20 per cent tax instead of the much higher rate of 32 and sometimes 40 per cent stipulated by the previous law. Through these cuts, the law aims at reinstating the long-lost trust between tax payers and the Income Tax Authority. In the past, tax payers were believed to be guilty until proven otherwise, but now this will no longer be the case. "The authority will approve of all tax reports as submitted by clients. Examination of reports will be done only on a random group," Hosni Gad, head of the Income Tax Authority, has been quoted as saying on more than one occasion. Hoping to create more awareness and trust between the two parties, it has been agreed that all companies or individuals who decide to register at the authority to open a tax file, will be exempted from any late taxes on their previous years of activity. In the meantime, lawsuits filed against tax payers before October 2004 will be dropped. Conflicts in cases with values less than LE10,000 will be forgiven and only a percentage of the disputed sums will be paid in those cases of higher value. Other steps have also been taken to facilitate tax registration and collection. Automation of different tax bureaus is an ongoing process with automatic filing and submission of tax reports now available. Ultimately, the philosophy behind the new law is to urge the citizens to abide by the law and to eliminate tax evasion. "If taxes are reduced by half and the whole process has become more flexible, so why evade paying the tax?" commented Boutros-Ghali. Theoretically, any losses in the government revenue as a result of tax reductions will be compensated by including a wider range of professions that will be taxed. For example, professions such as those of plumbers, technicians, mechanics, hairdressers, doctors and lawyers, who were not previously obliged to pay taxes, will start doing so. "These categories will enjoy a three- year tax exemption once they start their activity," said Gad. But while the new law cuts taxes on the one hand, it has practically annulled a large number of tax exemptions that were previously granted as an incentive to investment. On top of these is the 10-year tax exemption given to new companies established in any of the new industrialised zones such as the 6th of October or the 10th of Ramadan cities. Traders were among the first to express their reactions to the new law and agreed that it constitutes a stride in the right direction. "Traders have been long awaiting the law. Tax collectors will no longer have the upper hand on tax payers," commented Khaled Abu Ismail, chairman of the Egyptian Federation of Chambers of Commerce who added that it is not worth it to fake tax reports and become subject to lawful penalties if treatment is based on justice and mutual trust. But to say that the new law is flawless is far from true. Tax experts as well as university professors strongly believe that the new law includes many contradictions which will only be noticed once it is fully applied. "It is important to underline that certain articles in the new law conflict with other laws in Egypt, particularly those controlling investment," said Hamdi Heiba, a tax expert who added that "while investment laws stipulate that tax laws do not apply to free zones, the new tax law did not exclude these zones from its stipulations." He concluded that "this is bound to cause confusion among companies who have set up in these zones." Other views claim that the new law has overlooked many important social dimensions for the sake of collecting more money. "One of the main categories that will be done injustice is the small and medium-sized enterprises which constitute the majority of the economic activity in Egypt," said Hatem El-Qarnashawi, professor of economics at Al-Azhar University. According to the new law, loans received from the Social Fund for Development (SFD) to establish an enterprise are tax exempted. "What kind of social justice does the new law propagate if only SMEs under the Fund are exempted while the rest are not?" said El-Qarnashawi who also mentioned that it is ridiculous to collect taxes from small enterprises which took full responsibility to provide all their own capital and did not cost the government a penny to start activity, while exempting those who depended on the SFD. "The new law took sides with the fund not the SMEs sector in general," noted El-Qarnashawi. El-Qarnashawi also claims that social injustice is clear in the case of unifying the ceiling of tax exemption of both single and married employees with children. "It was only just that married individuals should be allowed a higher ceiling of tax exemption simply because they bear more burdens," he added. As with the majority of new laws, the recently approved tax law will have to stand the test of time before its pros and cons are fully understood.