New SME tax system aims for broader tax base: The recently approved SME tax system could save taxpayers — and set the government back — some EGP 800 bn in foregone tax revenues, with 85% of taxpayers registered with the Egyptian Tax Authority set to benefit from the amended system, a government source told EnterpriseAM. The move is designed to bring more businesses from the informal economy into the official tax base — which will eventually lead to more tax revenues, the source explained.

(Tap or click the headline above to read this story with all of the links to our background as well as external sources.)

ICYMI: MPs on Monday gave their final approval to a draft law that replaces lump-sum tax on SME businesses with a variable tax rate ranging from 0.4-1.5% that covers income tax, VAT, duty tax, and others. The stated purpose of the draft bill is to support the SME sector, while also expanding the tax base and integrating the informal economy.

What are the new tax rates? Instead of a flat EGP 1-5k lump-sum tax based on businesses’ annual revenues, businesses will pay the following tax rates:

  • Businesses that have an annual revenue up to EGP 500k will pay a 0.4% tax;
  • Businesses that have an annual revenue between EGP 500k-2 mn will pay 0.5%;
  • Businesses that have an annual revenue between EGP 2-3 mn will pay 0.75%;
  • Businesses that have an annual revenue between EGP 3-15 mn will pay 1.0%;
  • Businesses that have an annual revenue between EGP 15-20 mn will pay 1.5% tax.

E-invoicing is now required: The new system requires registering with the Egyptian Tax Authority’s e-invoicing system, the source told us.

What about the tax rate on employees? The government is also considering measures to lower employees’ tax burden and ensure that employees receive tax breaks comparable to those offered to business owners under the new SME tax framework. The government could do this by increasing the personal tax exemption limit by EGP 6k in conjunction with a higher zero-tax bracket, or by increasing the personal tax exemption limit to between EGP 10-12k with no change in the zero tax bracket, the source told EnterpriseAM.

Remember: Government sources told EnterpriseAM earlier this month that the Madbouly government is preparing a new social protection package that will contain raises in the minimum wage, tax thresholds, social protection coverage, and pensions. The Finance Ministry was looking into raising the personal income tax exemption threshold to EGP 65k — up from EGP 60k previously — while keeping other income brackets unchanged, our sources said at the time.

Tags: