A taxing situation

By Aziza Sami
The Court of Cassation's recent ruling on the sales tax has instigated what could conceivably border on civil disobedience on the part of importers. The court had decreed on 30 October that the sales tax should be levied only once on an imported commodity after customs clearance. The tax cannot be levied a second time (which is currently the practice) upon sale of the commodity in the local market unless it has undergone some manufacturing process.
The case upon which the court ruling was made had been brought by an importer of timber against the Sales Tax Authority. Following the plaintiff's success, the Importers Division of the Federation of Chambers of Commerce -- supported by fiscal and legal experts -- took the stance that the court's ruling applies to all imports.
This, they say, was the original intent of the sales tax law upon its initiation in 1991 but was effectively subverted by the executive authorities who duplicated taxation by levying the tax twice.
Timber importers declare they will not submit data on their sales tax obligations, in defiance of the head of the Sales Tax Authority Mahmoud Ali who unequivocally insists that the court's sentence is applicable only to the plaintiff -- and to category of imports known as A.
The Federation of Chambers of Commerce has announced that the sales tax levied on imports sold on the local market is no longer enforceable -- on the premise that Court of Cassation rulings are laws. It is subsequently submitting memos to the minister of finance and to the public prosecutor, demanding that the court ruling be considered a legal precedent applicable to all imports.
This whole development comes in the wake of chronic complaints by producers and traders. Their capital, they say, which is needed for operations in the domestic market, is often frozen to all intents and purposes, given that manufacturers are placed in the unenviable position where they must, on behalf of the consumer, pay the sales tax twice, once during customs clearing and again upon any sale in the domestic market. And fines exacted for delayed payment of the sales tax can reach a cumulative 30 per cent of the price of the imported commodity itself.
Given the current situation, the Commodities Council for Engineering and Electronic Industries has called for a reassessment of the value of the sales tax and the manner of its payment. Such demands are rising as producers and traders seek to activate the market out of its current recession
Despite the growing emphasis which the government is placing on tax reforms, and the exemptions already given investors, the issues surrounding the sales tax -- its legal and fiscal convolutions aside -- remain a significant illustration of the myriad problems that can be encountered in the process of application. The core problem of the sales tax issue -- as the court ruling reveals -- is the contradiction between the law and its application. This recurrent discrepancy in the interpretation of economic and fiscal laws has raised no small amount of criticism by experts.
In the coming phase of liberalisation, the sales tax and its applications are likely to become an indicator of how far the government, for whom tax revenue has remained a bulwark in funding services and financing the budget, is willing to go to encourage manufacturing industries to operate more competitively.
It is true that the sales tax alone -- since its initiation in 1991 -- has raised government revenue from LE3 billion to the current LE16.5 billion. But while developmental aims are important and indispensable, it is necessary as well to review the role of the state as rent-seeker and levier of taxes -- as it strives to encourage production and investment. The current situation has engineered the perverse scenario whereby producers are constantly hemmed in by a plethora of bureaucratic and fiscal impediments, and where, the reverse side of the coin, consumers in the local market have to pay three times the price for commodities than that paid by their far richer, Western counterparts. And this, obviously, is not a sustainable position.
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