Sales tax blues

Although merchants have at last come to terms with the sales tax, trading is at all- time low and consumers might finally be bearing the brunt. Mona El-Fiqi reports
Three weeks after the final stages of the sales tax came into effect, traders have realised they need to reconcile themselves with the new reality. Meanwhile, apprehension over the tax have driven sales figures down, exacerbating an ongoing market recession.
Traders have grown accustomed to normally lower sales volumes in July and August due to the holidays and the heat, which drive people to the beaches. With the imposition of the second and third stages of the sales tax on wholesalers and traders beginning 1 July, the situation has worsened. While consumers mostly window shop, waiting for the shopping festival discounts and the August sales, traders are reluctant to buy large stocks of goods they fear they will not be able to sell.
According to consumers, prices of some goods, such as household equipment and imported food items, have already risen. Moreover, while some shops and supermarkets have added the sales tax on their invoices, others have raised prices and are refusing to give consumers receipts.
El-Sayed Abdin, chairman of the Grocery Division at the Egyptian Federation of Chambers of Commerce (EFCC), said the sales tax is not the culprit behind the price hikes. "The increase is very slight and consumers should not feel it, unless the trader is greedy and raises prices by 10 per cent," he said.
He explained that the rise in the price of the dollar is to blame for the increase in imports' prices.
Traders have reacted differently to the imposition of the sales tax. While some have raised their prices, thinking they have to make up for their perceived losses, others have embraced an opposite attitude. Mohamed El-Sewedi, executive director of the Arab Industrial and International Trading Company, said his company did not raise prices to encourage people to buy. "I believe if I sell at a lower price, I will sell more and earn more profits," El-Sewedi said.
Merchants are aware of the government's real aim behind the application of the sales tax. Having in many instances been kept in the dark regarding the actual figures of small and medium-sized enterprises' trade volume and profits, collecting the general income tax, which is almost 40 per cent, from these businesses has been a near- impossible task. By levying this new tax, the government has obliged traders to submit full documented details of their business transactions.
According to El-Sewedi, the high general tax rate levied on traders has forced them to evade tax payment. But, he said, if the government approves the new tax law currently being prepared, the tax rate will fall to 25 per cent and total tax revenue will rise as traders will be more inclined to fulfil their tax obligations.
To avoid being liable to the sales tax, some small traders intend to reduce their annual trade volume to less than LE150,000, the figure below which the tax is not applicable. Mounir Ragheb, chairman of the Wood Division at the EFCC, said that small carpenters are not buying stocks of wood in order to bring their trade volume down. According to Ragheb, this will lead to a shortage of supply in the market and an increase in prices.
He said the government should exercise some flexibility in dealing with the different trade sectors. Since the wood sector in Egypt depends mainly on imports, it would be more practical to collect the sales tax on wood through the Customs Authority and avoid the negative impact on small traders, he said.
Although the government has given retailers a four-month grace period to sell the stock in their stores bought before 1 July on which the tax is not applicable, traders say they are not being given enough time, especially since summer sales are low. El- Sewedi said traders might resort to raising prices of stocks if not sold during the grace period.
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