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Egypt's Morsi Suspends Sweeping Tax Hikes

by Ulrika Lomas, Tax-News.com, Brussels

12 December 2012


Egypt’s President Mohamed Morsi has suspended the series of planned tax rises announced recently, aimed at enabling the country to meet the conditions of its USD4.8bn Stand-By Arrangement (SBA) with the International Monetary Fund (IMF).

The move follows the decision to rescind a controversial decree bestowing unrestricted powers on the Egyptian President, in the wake of violent clashes with protesters opposed to the planned referendum on the disputed draft constitution.

The u-turn on the sweeping tax measures is intended to restore calm. The government had planned to increase income taxes by providing for new rates of taxation, and to increase property taxes.

The government had also planned to increase the tax on cigarettes and on alcoholic drinks, as well to raise taxes on soft drinks, electricity and on water. Another proposed tax targeted advertising.

At the end of last month, the IMF announced that it is to grant a 22-month Stand-By Arrangement to Egypt, worth USD4.8bn, to support plans to overhaul the tax system, to slash the deficit and increase social spending.

Confirming a staff-level agreement on the SBA, the IMF explained the program would "address the country's fiscal and balance of payments deficits, and lay the foundation for rapid job creation and socially balanced growth in the medium term."

At the time, the IMF 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."

Under the program, Egypt would reduce its budget deficit from 11% of gross domestic product (GDP) in 2011/12 to 8.5% of GDP by 2013/14.

The IMF added: "An important objective of the authorities is to ensure a fair and competitive business environment with a level playing field among investors. Accordingly, the authorities intend to enhance the transparency of registration and licensing procedures, facilitate the resolution of investment disputes, and support small and medium-size enterprises. Fair and unencumbered access of businesses to economic opportunities is important for a socially balanced private sector growth and job creation."

The Fund concluded that: "Overall, the authorities' economic program promises to address many of Egypt's pressing economic challenges during a difficult time of political transformation, and lays the foundation for durable and inclusive growth, while striving to meet the people's expectations for greater social justice and good governance."

TAGS: tax | business | sales tax | property tax | budget | International Monetary Fund (IMF) | tax rates | Egypt | tax reform | individual income tax

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