IMF Supports Introduction Of VAT In Egypt

by Lorys Charalambous, Tax-News.com, Cyprus

12 February 2015

The International Monetary Fund (IMF) has expressed support for Egypt's efforts to broaden the tax base, encouraging the swift implementation of a modern value-added tax (VAT).

The Egyptian Government plans to replace the current sales tax with a fully fledged VAT in the spring. A draft law following international standards has been prepared, and the tax administration is finalizing preparatory steps. A rate for the new VAT has not yet been set, but a rate of between 10 and 12 percent has been mooted and would be levied on a wide range of goods and services.

Work is also underway to develop a simplified tax regime for small and medium enterprises (SMEs) alongside the introduction of VAT. Egypt is also in the process of enhancing the systems used to administer taxes in an effort to improve tax compliance rates.

The IMF said in its Article IV consultation report with Egypt that the measures could help the Government achieve its plan to cut the budget deficit to 8-8.5 percent of gross domestic product (GDP) by 2017. However, the Fund said that authorities should be prepared to take contingency measures if the reforms do not fully deliver the expected revenues. Possible measures could include setting a higher VAT rate or scheduling a future increase. Property taxation could also be increased, it said.

Aside from the new VAT, the Egyptian Government's 2014/15 Budget included the introduction of taxes on dividends and capital gains, a five percent additional tax on affluent taxpayers, increases to excise duties on tobacco and alcohol, and a revamped property tax.

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