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Egypt Backs Away From Progressive Tax Plans

by Ulrika Lomas,, Brussels

15 November 2013

The Egyptian committee, tasked with amending Egypt's constitution has reportedly rejected plans to include an article in the country's basic law, providing that progressive taxation should serve as a basis for tax policy. This marks a significant blow, as the International Monetary Fund (IMF) recently reiterated its intention to provide financial aid to Egypt in return for fiscal reforms.

According to Ahram online, the committee warned that plans to enshrine progressive taxation in law would simply prove disastrous for the Egyptian economy, resulting in a dramatic decline in foreign investment. Mohamed Ghoneim, a former member of Egypt's Social Democratic Party, had put forward the idea, maintaining that progressive taxation is one instrument for achieving social justice "that should be regulated by law."

Egypt has been considering the idea of progressive taxation since the 2011 uprising. Proponents of a progressive tax system insist that such a regime will generate much-needed additional revenue for the state, while ensuring a greater contribution from the country's top earners, and restoring social justice.

Opponents maintain, however, that discussions on a progressive tax system will merely deter investors, advocating instead that new revenues should flow from other sources, notably from an envisaged property tax, or from the introduction of a value-added tax (VAT) system.

Egypt currently imposes individual income tax at a rate of 10 percent for personal income of between EGP12,000 (USD1,741) and EGP30,000, at a rate of 15 percent for those earning between EGP30,000 and EGP45,000, at a rate of 20 percent for income of between EGP45,000 and EGP250,000, and at a rate of 25 percent for income in excess of EGP250,000.

Back in November 2012, the IMF stressed that it would be prepared to accord a loan to Egypt worth USD4.8bn, to support plans to overhaul the tax system, to slash the deficit, and to increase social spending.

At the time it said: "Fiscal reforms are a key pillar under the program. The authorities plan to reduce wasteful expenditures, including by reforming energy subsidies and better targeting them to vulnerable groups. At the same time, the authorities intend to raise revenues through tax reforms, including by increasing the progressivity of income taxation and by broadening the general sales tax to become a full-fledged value-added tax."

TAGS: tax | investment | value added tax (VAT) | sales tax | property tax | energy | law | International Monetary Fund (IMF) | corporation tax | tax rates | Egypt | tax reform | individual income tax

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