Cairo: Egypt’s parliament approved on Monday a long-awaited law introducing a Value Added Tax of 13 per cent which will rise to 14 per cent in the next fiscal year. Parliament had been debating the law for weeks with several lawmakers opposing the government’s initial proposal of 14 per cent and wanting to lower it to 12 per cent for fear it would stoke inflation. The 13 per cent rate was agreed after Finance Minister Amr El-Garhy proposed it as a compromise in a Sunday parliamentary session.
The long-delayed VAT law is part of a government fiscal reform programme aimed at reducing a ballooning deficit by finding new sources of revenue and cutting energy subsidies.
The law will replace the current sales tax which economists have long said creates market distortions. It is expected to broadening the tax base in a country where the government struggles to efficiently collect income tax because of a large informal economy and widespread avoidance.
However, the tax exempts basic goods and services to protect the poor from rising prices.
Egypt’s economy has been struggling since a mass uprising in 2011 ushered in political instability that drove away tourists and foreign investors, both major earners of foreign currency.
The turmoil has seen foreign reserves more than halve from some $36 billion before the uprising to some $15.5 billion in July.
