The Egyptian Parliament has discussed and approved the new Value Added Tax law. In the light of this, the Government relies on the (VAT) law to increase its financial resources, cope with the budget deficit and treat the abnormalities of the sales tax. The implementation of the law has created widespread controversies, especially during the current challenges facing the Egyptian economy. In this context, the Canada Egypt Business council and the Egyptian council for sustainable development organized a seminar featuring Mr. Abdel Moneim Matar the Head of the Egyptian tax authority under the title “The New Value Added Tax Law…challenges and opportunities.”
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In the opening remarks, Eng. Motaz Raslan stated that Egypt is facing major economic challenges as a result of consecutive crises that have affected many Egyptian sectors as tourism, flow of investment, and thus created lack of resources; which is reflected in the huge scarcity of the dollar. These challenges have pushed the government to search for alternative solutions to increase its financial resources and to fulfill its commitments, among these solutions was the VAT law, which the Ministry of Finance aims to increase its financial resources by about 30 billion Egyptian pounds, through implementing it.
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Certainly, there are some fears with regards to the law implementation, such as fears of a higher inflation rate, decline in investment, tax evasion and the factories registration process; as prolonging the procedures can lead to the growth of the informal economy. To get the full information concerning these issues, Mr. Matar explained the whole picture of the law and its effect on the society.
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He began his speech explaining the VAT law, as the law that clears the cost of the production process from all the taxes included in it, that used to create duplication of taxes when adding the former collectible tax on indirect inputs, so there was an insistence on applying the VAT. The law states that any transaction that entered between two parties will be subjected to the VAT. Accordingly, transactions related to media companies, radio transmission, intellectual property, consultations, training, and advertising rights, will be subjected to the VAT, as to purify the industrial product from all taxes that were endured during the production process. The VAT introduced the registration limit for each person or legal entity selling goods or services subjected to the VAT, whose gross sales equals or exceeds EGP500,000, where the tax authority is making expansions by following up with the suppliers to reach the whole market.
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The authority was keen to conduct community meetings and seminars with different tax segments of the society associations and chambers to discuss the value added tax. The committee of budgetary and planning allowed about 400 people from business owners, representatives and others who deal with the tax to share their opinions, suggestions, and ideas during the seminars where the tax authority took their proposals and carried out some modifications in the law in coordination with the Ministry of Finance.
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The authority is currently preparing a list of all executive regulations, which will interpret the provisions of the law and show the law enforcement so that it does not need further instructions after issuing it. They were also keen on communicating the owners of any business subjected to VAT, or those who need a special discussion on their business nature, so that they can take into account the regulations of the law.
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Mr. Matar replying to the clarification requests, pointed out that the law had been applied gradually through different stages, as there had been discussions on application of the VAT law since 1991, now in 2016 the law is being fully applied, where any transaction will be subjected to the law, except what is excluded on a special term. Regarding the problem of lawyers, he explained that the law does not address individuals or groups, but it addresses goods and services, thus industrial products or performed service are complied with the provisions of law as long as they are not included in the list of exemptions.
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Considering the prices of cars, they will not increase after the application of the VAT law and the financial impact would be in favor of the consumers, as the cars prices will be reduced by up to 1%, and what have been changed is the only calculation methods of the tax. It was added that the e-commerce activities that are related to software and intangible services are currently being researched, because the value-added tax law stipulates that any foreign supplier must have a representative in Egypt pay off his tax.
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The authority is working on anti-tax evasion and preventing the ways of restricting inventories in methods that fit with each activity. Regarding the small and micro-enterprises, the ministry of finance had set up new law facilities for SME’s to treat the problem of the registration limit and develop methods for handling the tax. Concerning advertising services, it is better for companies to advertise their products in order to avoid double taxation,as it was mentioned that those who pay the stamp tax of 20%, will be exempt from the VAT on the advertising services. The Value added tax law emphasizes the need to edit the tax bill when selling goods or service in accordance with article no. (12) which states that “The registrar is committed to a free tax bill, when selling taxable good or service, that includes the buyer’s name and registration number, and the executive regulations specify the data contained in the bills and measures, to ensure the regularity and to facilitate the monitoring and review”.
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With regard to the banking services, it was mentioned that the bank which provides services other than banking services will be subjected to the VAT. Finally, Mr. Matar stressed on the need for integration between all parties in order to limit the informal sector and annexed them to the formal economy, to control the rampant market and counter tax evasion, so we should unite together to reform the taxation system and collect taxes for the country ,as these taxes are the only way to fill the budget deficit, because if we intend to fill this deficit by borrowing, it would be a higher cost on the country’s budget, with extra interests that will be endured by the next generations.