The business community is being clued in to the new draft tax law. Niveen Wahish listened in Tax reform is a hot topic nowadays. With the new draft law awaiting a parliamentary discussion, the public is eager to find out more about the radical tax changes that are set to make life easier. Last week, at a conference organised by the Egyptian Centre for Economic Studies (ECES), the business community got a chance to listen to experts explain the law's framework and rationale. While the law -- which cuts the maximum tax rate from 40 to 20 per cent -- has been consistently spun as a means of putting more money into people's pockets, it is also about more than just that. Hazem Hassan, chairman of KPMG Management Consultants, explained some of the new concepts underlying the law to attendees. Hassan said the law basically changes the way the tax authority views tax payers. Under the current law, the taxpayer is considered guilty until proven innocent. Earnings reports were considered untrustworthy, and individual inspection audits of company records were constantly taking place, he said. All this is expected to change. With the new law, the taxpayer's tax statements will be considered the ultimate document defining how much a person or entity is to be taxed. Only the occasional, random inspection or audit will be made. If an inspection, however, proves that the submitted statements were wrong, the penalty will be harsh. Another novelty is that the new law stipulates that the tax authority must accept computerised tax records. Currently, companies must do their paperwork by hand. The new law is also set to be more fair. While the current law's Appeals Committee was composed entirely of tax authority staff, under the new law, representatives from the Federation of Industries and the Federation of Chambers of Commerce will also be part of the committee -- in order to ensure more objective judgements. Under the current law, when a complaint is filed with the Appeals Committee, the taxpayer is asked to pay, and then complain. With the new law, payment is deferred until a decision is made. While these reforms may be easier said than done, "doing nothing is definitely not the solution," Finance Minister Youssef Boutros-Ghali told conference. "The greatest enemy to reform is to stand still," he said. Ghali acknowledged that although not everyone would approve of the law, once it goes through parliament, its shortcomings could be dealt with at a later stage. For these reforms to succeed, he said, internal reform at the tax authority -- a problem that will be dealt with in due time -- had to also take place. Another issue is the loss -- estimated at some LE4 billion over two years -- that the new law will mean for the government's coffers. Ghali said that while the short-term revenue loss would expand the already gaping LE52 billion budget deficit, it will also mean structural reform of that deficit in the longer run. By reforming the tax system, Ghali said, Egypt was not re-inventing the wheel, but walking in the footsteps of others, while customising things at the same time. Countries that have applied these types of reforms have eventually witnessed an increase in tax revenues, he said. The reforms are expected to boost growth by 1.5 to two per cent. Ghali said that even Alan Greenspan, the head of the US Federal Reserve, had described the changes as the best investment that could be made in the Egyptian economy.
