Revised tax in Egypt runs into fierce resistance

Cairo: It is enough to glance at the pages of the main Egyptian newspapers to realise that the country is in the midst of a construction frenzy.

Most days the pages are filled with big colour advertisements for houses and apartments in new developments on the desert edges of Cairo and for holiday homes on the Mediterranean and Red Sea coasts.

These properties are aimed at Egyptians from the upper reaches of the middle classes and beyond, many of whom have benefited from an acceleration of economic growth in the past four years. Often featuring villas set in gardens with swimming pools, Cairo's new posh neighbourhoods offer a suburban lifestyle unknown to Egyptians until recent years.

Similarly, along the Mediterranean coast, developers have built dozens of holiday compounds that are used by their well-off owners for only two months in the summer. During the rest of the year, life almost completely disappears from the coastline, leaving a series of concrete ghost towns.

Series of reforms

With so much wealth locked into bricks and mortar, the Egyptian government has been trying to implement a revised property tax. The levy was adopted last year and replaces a hotchpotch of older regulations and exemptions. It is one of a series of reforms aimed at modernising taxation and plugging a budget deficit expected to reach 8.4 per cent of gross domestic product this year.

But the property tax, which officials hope will bring in up to $500 million (Dh1.8 billion) a year, has run into stiff resistance, with fierce attacks in the press and attempts in parliament to scupper it.

Government assurances that only 5 per cent of properties in the country will be liable for tax, because the rest fall below a $92,000 market value threshold, have not curbed criticism of the law nor stopped attacks on Yousuf Boutros Gali, the finance minister.

Even the government press has joined the anti-tax campaign. Ezzat Al Saadani, a commentator in the state-owned Al Ahram, wrote a sarcastic piece describing Gali as a "minister of extortion" who has no qualms about piling more burdens on the poor.

"This law which slaughters the poor has to go back to the People's Assembly [parliament] ... " wrote Saadani. "It conflicts with the simplest of human rights... and it lacks legitimacy."

Last week a parliamentary committee accepted a proposal to reconsider the law with a view to exempting dwellings used as the owner's primary home — something that officials say would open enormous loopholes for evasion. The government is capable of scotching any challenge to the tax, but in an election year it may decide to compromise.

"I don't understand the logic behind the attacks," says Samir Radwan, senior economic adviser to the Egyptian Financial Services Authority. "There are people who believe that when they have fed the poor during Ramadan, they have paid their dues. Businessmen now talk of corporate social responsibility, but this is the first step in social responsibility to pay your tax and to pay a fair share."

He and others note that wealthy Egyptians face a low tax burden — 20 per cent is the highest income tax rate — and that they benefit far more than poorer people from cheap petrol subsidised by the government.

Under the new property tax, the cheapest eligible home worth $92,000 would be liable for a yearly tax of only about $6, while a residential property worth $920,000 — close to the top of the price scale in Egypt — would pay an annual $1,049.

Scepticism

The government has promised to shoulder the tax burden for those who are unable to pay, but in a heavily bureaucratic country many are sceptical that an elderly pensioner or a poor family living in a large house will be able to make their case successfully. Some are also afraid that the committees that are due to value properties to set the tax, and revise valuations every five years, may come up with exaggerated numbers.

"I think part of the problem is there has not been enough social dialogue about it," says Radwan. "There should have been more explanation of the mechanisms, for instance, that will be used to aid those who cannot pay."

In addition, the fact that all real-estate owners, regardless of the value of their properties, are now required to fill in a return declaring what they own, has further fuelled popular suspicions.

There is a huge informal economy in Egypt and people are used to keeping their financial dealings off the government's radar screen.

The uproar from opponents of the tax has drowned out the voices of those who argue it will help reduce rents and prices because it will force owners of an estimated 1.2 million unused units to make econ-omic use of them.

— Financial Times