The Cabinet approved in principle a bill establishing a Value Added Tax (VAT), the state-owned news site EgyNews announced Monday.
The approval came during the Cabinet’s Monday meeting. The draft law will now be sent to the State Council for review before being passed to Parliament for discussion and ratification.
The VAT law is intended to replace Egypt’s 1991 General Sales Tax, and is a key component of the government’s economic reform program. Egypt’s loan agreement with the World Bank also requires that the state adopt a VAT before the bank will transfer the first installment of a US$3 billion loan agreed to in December 2015.
Officials predict introducing a VAT will bring in up to LE30 billion in new tax revenue. The Ministry of Finance argues that the VAT “realizes justice and eases burden on lower-income segments,” saying the greatest burden of the new tax would fall on Egypt’s wealthiest 20 percent.
However, taxes on consumption, such as the VAT, are generally regarded as regressive, because poorer citizens spend a greater percentage of their earnings on consumer goods than their wealthier counterparts.
The impact on consumers will depend to a great extent on the rate at which the VAT is set, as well as which goods and services are included and the exemption threshold for small businesses. The government has not yet publicly released details of the bill. Vision 2030, the government’s development strategy document, put the rate at 10 percent, in line with the current General Sales Tax.