VAT amendments approved: The House of Representatives gave its final approval to the government-drafted bill amending the VAT Law yesterday — the amendments will impact the prices of construction and contracting services, crude oil, cigarettes, and alcoholic beverages, according to a statement seen by EnterpriseAM. Here are the key changes to VAT Law under the approved amendments:

#1- Taxing crude: The amendments also introduce a new tax treatment for crude oil — making it subject to a 10% tax, which the Egyptian Tax Authority confirmed will not result in any additional increases in local fuel prices.

#2- Construction and contracting services will also be subject to the standard 14% VAT rate — under the current VAT system supply and installation services are taxed at a flat 5% schedule rate without allowing companies to deduct input VAT.

THERE’S MORE TO THE STORY- We dove into what new VAT rules could mean for contractors in a Hardhat published earlier this year. Check it out here.

#3- Tax hikes on local and imported cigarettes: Locally produced cigarettes priced at or below EGP 38.88 will increase to up to EGP 48 for consumers, while those priced between EGP 38.88-56.44 will go for EGP 48-69.

As for imported cigarettes, those priced at or below EGP 56.44 will go for up to EGP 69. The amendments also stipulate a 12% annual increase for the aforementioned cigarette categories over the coming three years starting 2 November.

#4- Alcoholic beverages will be taxed based on their alcohol percentage, with the tax percentage set to rise by 15% annually for the next three years — after which the annual increase will be reduced to 12%. The amendments are in line with the World Health Organization’s standards, and come with the aim of protecting public health, our sources said. Red wine and both distilled and non-distilled spirits will be subjected to the following flat tax rates per 100 liters based on their alcohol level:

  • EGP 2.8k for beverages with an alcohol by volume (ABV) of less than 8%;
  • EGP 3.6k for beverages with an ABV between 8-16%;
  • EGP 4.8k for beverages with an ABV above 16%.

What will it all mean for state coffers? The amendments will help the government bring in an additional EGP 200 bn in tax revenues, a senior government official told us.

What won’t be taxed: Tax exemptions on commodities and food items, healthcare, and educational services will remain in place and the standard VAT rate will not be increased, the Tax Authority said.

You heard it here first: Back in March, EnterpriseAM reported that the Finance Ministry is looking to reduce tax exemptions under the VAT Law, with the government reviewing goods that are exempt from the law and limiting goods subject to special tax treatments.

The measure comes as part of our reform program with the International Monetary Fund, one source previously told us, adding that applying different tax rates instead of the standard 14% prevents businesses from deducting VAT on input costs. This, in turn, leads to manufacturers paying a higher tax and the consumer bearing the full tax amount.

REMEMBER- The Madbouly government is aiming to raise some EGP 2.6 tn in tax revenues in the upcoming fiscal year through implementing existing tax facilitation laws and introducing new facilities on customs and real estate taxation — all without imposing additional tax burdens, Finance Minister Ahmed Kouchouk said in his budget statement to the House in April.

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