Limited though they may be, the repercussions of the latest sales tax amendments will prove to be profound, Sherine Nasr reports This week, five amendments on the Sales Tax law were ratified by the People's Assembly. Though minor, yet experts believe the amendments are badly needed in order for the tax system to become more stable and flexible. The first and most important of these amendments is that sales tax will not be collected on second-hand appliances and industrial equipment. Moreover, the services sector, such as hotels, restaurants and entertainment facilities, will be able to benefit from these sales tax exemptions. "These amendments have long been called for by all types of industries," said Mahmoud Mohamed Ali, chairman of the Sales Tax Authority, in a press conference that was held this week to announce the latest amendments. It has long been a normal procedure for companies in various activities to buy second-hand equipment for their production lines, and they will now be able to do so without paying a 30 per cent sales tax. Industrialists had argued that this tax hindered attempts to expand production and resulted in higher costs. This new amendment, however, has excluded the food industries, from enjoying this privilege. "It was natural to exclude food industries because their production is already tax-exempted," explained Ali, who added that the government was keen not to impose a sales tax directly on locally-produced food products, including cooking oil, butter, jam and dairy products. "We have to respect the social dimension because any more costs on these industries would end up as more cost for the final consumer," he said. Food companies exporting products can enjoy a tax exemption relevant to the percentage of production exported. "In other words, if the company exports 40 per cent of its total production, it can enjoy a 40 per cent exemption of the total value of the taxes imposed on their equipment," Ali said. However, this did not mollify leaders in the food industry upset to be left out in the cold, and some are alleging that the amendment is unconstitutional and preparing to file lawsuits. There are also fears in the market lest traders should take advantage of the situation by raising the prices of the majority of food stock commodities, a step that would definitely anger the public. Nevertheless, Ali made it clear that it is only the right of the other industries to enjoy the latest tax exemption simply because their final products are taxed. "Imposing two taxes on the same product will be considered as tax duplication," he said. One other amendment exempts all types of bread from a five per cent sales tax in an attempt to unify the sales tax practice on the same product. Another major amendment has to do with settling disputes between the authorities and taxpayers. The compulsory arbitration system has been replaced by a non-obligatory conciliatory committee. "In case the dispute is not solved, the decision of the committee is not compulsory and the taxpayer can always resort to the Administrative Court to file his case," said Ali. "Although we managed to solve no less than 90 per cent of the disputes through the arbitration system, we felt it is our duty to provide taxpayers with a more flexible system to voice their complaints," said Ali. "This is why an independent department with an aim to guide customers through the different processes has been established in every bureau across the country," said Ali, adding that taxpayers have recorded an impressive 96 per cent compliance rate. The most unexpected of all the new amendments, however, unifies the sales tax and income tax authorities into one entity. "It has been noted that the taxpayer is but one in both cases and that many of the procedures are similar in both authorities. These include checking the files, submission of the tax file, complaints and arbitration," observed Ali who added that is a waste of the time and effort of customers as well as the authorities to have a duplication of procedures. At first sight, the new trend, mainly proposed by Finance Minister Youssef Boutros Ghali, is meant to facilitate procedures and save time. Nevertheless, the process may include more technical complications than any government department can claim to be able to solve. For example, it is difficult to conceive how to merge similar departments in both authorities, and how to integrate employees with similar responsibilities, yet in different departments, together. Implicitly, however, the main purpose behind the amendment is to allow both tax authorities to freely exchange information on taxpayers. Traditionally, major taxpayers are not keen to have their tax records openly exposed to both authorities at once. "It has been the norm to submit one tax record to one authority and another to the other authority. This will no longer be the case," commented a tax expert who preferred to remain anonymous. In order to ratify this amendment, the People's Assembly repealed Article no. 39, which forbade the exchange of information between the tax authorities. Ali indicated that the merger will take place in two phases, the first to be completed by next September as a joint department of sales tax and income tax will be established to deal with major taxpayers, while the final and more comprehensive merging will be completed within two years. However, the tax expert believes that, a full merger will not ever take place, practically speaking, since the only purpose behind the amendment is to expose taxpayers openly before both authorities. In the meantime, some amendments have been postponed until a better study of cases and laws have been done. For example, the gold industry will continue to receive the same tax treatment as it has been for the past ten years. Moreover, the removal of the sales tax on capital goods, a recurring demand of investors, has been postponed to not deplete tax revenues more than necessary in the face of a large budget deficit. "A drop of some LE600 million in sales tax revenues is expected due to the new amendments. Making up for the loss is done through broadening the base of taxpayers in the country," said Ali.
