Our new tax incentive package is out: The government yesterday announced its first batch of new amendments to the tax system, which aim to ease the burden on taxpayers and build greater trust in the tax system, from filing tax returns to resolving disputes and integrating the informal economy, Finance Minister Ahmed Kouchouk said during a press conference (watch, runtime: 1:27:43) along with Prime Minister Mostafa Madbouly.

The new tax rules represent a business-tax authority reset: The amendments signal a new chapter in the relationship between the Egyptian Tax Authority (ETA) and the business community, Kouchouk said, — one based on “partnership, support, and certainty” that will see the ETA focus on providing excellent service and expanding the tax base to benefit both the state and investors, alongside improving support and services for citizens.

The details:

  • Launching a central clearing system to settle taxpayers’ obligations and dues to government entities, including non-tax and customs entities. This was one of the recommendations from the Supreme Council for Investment.
  • Putting a cap on late payment penalties such that the penalty does not exceed the original amount of tax due. Taxpayers will be allowed to submit or amend tax returns for the period between 2021 and 2023 without penalties.
  • Simplifying tax returns to ease the process for taxpayers, including by shortening the currently 60-page tax form and introducing graduated penalties for failing to file that are based on business size. Meanwhile, the ETA will work to fairly resolve old disputes, taking care to ensure that the taxpayer does not shoulder the burden of delays in the authority’s review of tax files.
  • Standardizing treatment across tax offices and jurisdictions based on clear yearly guidance, as well as the establishment of designated areas to answer taxpayer inquiries and the expansion of a sample inspection system to include all tax centers, relying on risk management systems for taxpayers across all offices and regions.
  • Establishing a pre-inquiry service for both local and foreign investors that would provide them with information on the taxes and fees relevant to their targeted activities, allowing them to make a more realistic assessment of the competitive landscape in the market, in addition to pricing mechanisms and cost calculations down to help resolve disputes, exits, and other issues.
  • Raising the exemption threshold for submitting a transfer pricing study for international companies to EGP 30 mn, instead of the previous EGP 8 mn stipulated in the Unified Tax Procedures Law, following the separation of transfer pricing examinations from income tax audits.
  • A simplified and integrated tax system for businesses with annual revenues not exceeding EGP 15 mn, including small businesses, startups, and freelancers. This system will cover income tax, VAT, dividends, and stamp tax to ease the burden on these businesses and encourage others to join the formal sector.
  • Simplifying the procedures for refunding VAT on purchases by foreign visitors, which will help establish a competitive and investor-friendly business environment, supporting the state’s efforts to maximize productive and export capacities.

The authority is investing in training and enhancing its cadres in order to prepare them for the new tax measures, Kouchouk explained. An employee incentive system will be implemented in parallel with a mechanism to monitor and follow up on the services provided to taxpayers and measure taxpayers’ satisfaction with employees, Kouchouk explained. He added that the incentive package includes contracting with an independent third party to conduct periodic evaluations that determine how much the taxpayer benefits from the new relief measures and address any gaps if they exist.

Madbouly also weighed in on the privatization program’s progress: The prime minister affirmed that despite recent economic and geopolitical hurdles that saw the government rearrange its priorities for certain companies included in its privatization offering, the state remains committed to attracting investments in a way that maximizes the benefits of privatization for the state.

More incentives are coming our way next week: The government is set to announce further investment incentives, including a new export rebate program, Madbouly said at the press conference. The Finance Ministry aims to quadruple or quintuple VAT rebates to taxpayers, which reached EGP 3 bn last year, according to Kouchouk.

WHAT TO EXPECT IN SECOND ROUND OF INCENTIVES-

More tax amnesty to incorporate informal economy: A senior government source speaking to Enterprise added that the government is preparing substantial incentives to incorporate thousands of new taxpayers into the system, including a comprehensive tax amnesty covering VAT, stamp tax, and other tax obligations in addition to income tax, which had previously been the only category covered under the 2020 SMEs law.

More businesses are set to qualify for the lump-sum tax category: The source also confirmed that the maximum limits for sales turnover for inclusion under the lump-sum tax category will be raised 40-50% without affecting the value of the lump-sum tax itself. This will allow entrepreneurs and small businesses to fall under the lump-sum tax category without the need for keeping regular accounts.

And two potential scenarios for the long-postponed capital gains tax: The source mentioned that there are two options for an alternative simplified collection mechanism for the capital gains tax: either the return of the stamp tax — confirming what another government source told Enterprise yesterday — or a fixed tax of 2% at the time of sale, which would be deducted immediately and collected by the ETA.

But why can’t we completely exempt capital gains from taxes? Exempting capital gains from taxation would contradict existing tax agreements and would turn Egypt into a tax haven. Egypt is committed to the regulations of the OECD in this regard, the source added.

And on resolving tax disputes: The source added that all tax disputes before 2020 will see interest higher than the value of the original due tax waived. He pointed out that interest in these cases has ranged from 230% to 600%, making this one of the most important incentives for resolving past disputes.

Also from the presser:

  • The government is negotiating with two Chinese companies to establish factories for electric and hybrid cars in Egypt during the coming year, Madbouly said, adding that the market will see around 4 mn cars produced annually from the companies’ factories.
  • The government is continuing to work with gold miner Centamin to exploit the Sukari mine in line with the state’s existing contract, Madbouly said in comments on global mining company AngloGold Ashanti’s acquisition of Centamin for USD 2.5 bn. Egypt’s share is “undisputed and may even increase,” Madbouly added.
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