Egyptian Tax Drive Mitigates Budget Deficit Rises

by Lorys Charalambous, Tax-News.com, Cyprus

12 August 2009

The Egyptian Minister of Finance, Youssef Botross Ghali, has announced the initial results of the state’s general budget performance for the fiscal year 2008/09, revealing that the country managed to maintain last year’s overall budget deficit ratio of 6.9% of GDP, despite the global financial and economic crisis.

Ghali announced that total public revenues had increased by 24% to EGP274.8bn (USD49.5bn), offsetting an increase in public expenditure of 21.7%, up to EGP343.7bn. Government debt has declined from 120% of GDP in 2005 to 80.6% in 2009. Ghali noted that, looking forward to future years, the government would aim to reduce its budget deficit to 3% of GDP by the fiscal year 2014/15.

Current statistics for the fiscal year 2008/09 show that tax revenues have increased 20% year-on-year, amounting to EGP163bn, representing 15.7% of GDP. Income tax revenues increased by 20%, higher than the previous year, amounting to about EGP8.6bn, while corporate income tax revenues, excluding sovereign authorities, increased by 28.7% to EGP20.6bn.

Ghali noted that the government had introduced several measures to mitigate increases in the country’s budget deficit. In order to reduce expenditure, he explained, the government had reviewed spending within the budget in collaboration with state agencies, as well as channeling expenditure in areas that have improved economic growth. The government increased its revenues, he said, through an overhaul of the government’s tax system under a scheme launched in 2004, wherein the efficiency of tax administration and tax compliance were both bolstered.

Ghali further noted that several factors have weighed heavily on the Egypts’s budget deficit during the course of the year, including a drop in Suez Canal revenues caused by falling global trade, an increase in wages, and a stimulus package that injected EGP15bn into infrastructure projects. Ghali added that despite the government’s prudence during the year, the budget had fulfilled all of the government’s objectives by providing a boost to economic activity, creating new job opportunities, increasing employees’ wages and pensions, as well as increasing welfare payments by 40% to support the country’s neediest.

According to Ghali, Egypt’s budget deficit will gradually increase until the end of the fiscal year as a result of the crisis, but will return to a downward trend through the following years, when the government will enforce higher tax burdens on taxpayers to ensure the country’s fiscal sustainability.

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