Analysts welcomed Egypt’s decision to lower its top tax rate for individuals and companies, but said uncertainty loomed over the introduction of value-added tax (VAT), which would potentially lower the country’s deficit.
The finance minister, Hany Dimian, said yesterday that it would take a maximum of two weeks to lower the income tax ceiling.
The highest income bracket is currently for those with an annual income of 250,000 Egyptian pounds (Dh 116,920), they are subjected to 25 per cent tax.
The new tax rate of 22.5 per cent is for those with annual income of 200,000 pounds or more.
“The new development will decrease the tax rate on the highest income tax bracket on both individuals and corporations, but will increase the number of individuals who fit into this tax bracket,” said Ziad Waleed, an economist at Beltone Financial in Cairo.
“The question that arises is the uncertainty around the temporary 5 per cent wealth tax for high-earning individuals and corporations who earn more than 1 million pounds a year. Will it be cancelled in FY15/16 as promised in March by the finance minister?”
Mr Dimian said that a decision to suspend a 10 per cent tax on capital gains would soon be signed into law. The decision was announced in May, leading Egypt’s stock exchange to soar to a two-year high at the time.
“It’s good news that they will freeze tax on capital gains, however it is coming a bit late, as the stock market is impacted negatively until the law is finally out,” said Mr Waleed.
Egypt’s economy has been battered because of political turmoil since the popular uprising in 2011.
Presently, the government is debating the rollout of the long-planned value-added tax (VAT). The VAT looks to be hugely unpopular among businesses, which are already suffering from five years of economic stagnation. But the tax is crucial for raising funds and demonstrates Egypt’s commitment to long-term economic reform.
Cairo says that it is relying on the VAT to keep its budget deficit under 9 per cent of GDP for the 2015-16 financial year that began on July 1.
“Egypt was supposed to implement the VAT from July to reduce its fiscal deficit to a single digit. This has not happened given that the law is not out yet. It is hard for them to gather the target 30bn to 35bn pounds this year as a result,” said Mr Waleed.
selgazzar@thenational.ae
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