So the government is removing tax breaks for state firms. Here’s what we know so far:The House of Representatives on Tuesday approved a bill that will scrap tax exemptions previously enjoyed by public-sector companies and state entities. The removal of the preferential tax treatment, long criticized for unfairly privileging the state and hindering the private sector, represents a serious move by the government as it looks to improve the business climate and attract new foreign investment into the country.

The status quo: Most state-owned and military-affiliated companies currently enjoy exemptions from paying a raft of taxes, duties, and fees to the government, giving them an advantage over the private sector, which has struggled to compete.

Leveling the playing field: Under the new bill, all public-sector and state-affiliated entities will be required to pay tax at the same rate as the private sector, ending the preferential treatment that observers have criticized for discouraging private investment.

This includes all taxes: The exemptions set to be scrapped “will incorporate all tax exemptions, including real estate taxes and custom taxes,” Bassam El Zayat, advisor to the parliamentary affairs minister, told MPs earlier this week.

THE CAVEATS-

Certain projects will be ring fenced from the changes: Under the legislation, companies working on projects that are defense- or national-security-related, fall under international agreements, and involve the construction of basic infrastructure will be exempt from all taxes, duties and fees.

We’re still waiting for the fine print: It remains unclear which projects will be considered as basic infrastructure and which will be ring-fenced as defense- and national security-related. We expect to receive more details when the government publishes the executive regulations for the bill in the coming six months.

We also need confirmation that the bill will supersede other legislation: The Madbouly government has asked the State Council (Maglis El Dowla) to rule on whether the new law will automatically supercede all other tax exemptions written into other pieces of legislation, a Finance Ministry source told us. Cabinet hopes it says “Yes,” as it aims to unify tax treatment across all companies and minimize exceptions as much as possible.

The impact on the public purse isn’t clear: A Finance Ministry study estimated that the changes could bring in EGP 100-200 bn in additional tax receipts over the coming five years, according to ministry sources we talked to. However, the study didn’t include state entities whose finances sit outside the state budget, according to House Planning Committee deputy chair Mostafa Salem (watch, runtime: 3:08), making the actual impact on tax revenues unclear.

Remember: Ending the tax exemptions was among the 22 decisions recently approved by the Supreme Investment Council designed to improve the business environment and boost private investment.

What’s next: The bill will be passed to President El Sisi who will sign it into law.

INDUSTRY REAX-

Private-sector players are happy: The bill was a major demand from the private sector, Mohamed Sami Saad, head of the Egyptian Federation of Construction and Building Contractors, told Enterprise. “Redirecting exemptions from entities to projects under certain conditions will rebalance the difference in costs between public and private companies,” he said, adding that they will be forced to be more competitive with the private sector.

Investors, too, were waiting for this step: Investors believe that the bill will improve the private sector’s competitiveness with the public sector, Egyptian Federation of Investors Associations head Moharam Helal told us. “The sector has been calling for such a step for years to achieve competitive neutrality in Egypt’s economy,” he said.

An end to tax exemptions will help equalize costs: The preferential tax treatment has always handicapped the competitiveness of the private sector, which has shouldered costs that are 30% higher than state firms, Mohamed El Bahey, head of the Tax and Customs Committee at the Federation of Egyptian Industries (FEI) told Enterprise. This, “along with high commodity prices and supply chain shortages, have weighed down on the private sector’s profit margins,” he said.

Time is of the essence: “Quick implementation [of the bill] will boost foreign investors’ confidence in returning to Egypt,” El Bahey said.

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