The Finance Ministry is preparing a wide-ranging package of fiscal reforms that targets some of the private sector’s deepest structural grievances, Deputy Finance Minister Sherif El Kilany tells EnterpriseAM. The measures — which range from significant changes to how companies in freezones are taxed to a shifting of personal income tax brackets to account for inflation — signal the state’s focus on tax fundamentals is far from over.

Leveling the playing field for freezones selling to the local market

Companies in freezones could soon face a 4-5% tax on products sold into the Egyptian market under a proposal currently being studied by the Finance Ministry and the General Authority of Investment and Freezones, El Kilany tells us. While freezone companies are exempt from many taxes, “domestic companies pay taxes — how is that fair? A freezone company is supposed to export,” El Kilany explained.

Why this matters: Currently, freezones offer exemptions for the 22.5% corporate tax, VAT on imports (including those brought in from the Egyptian domestic market), and some customs and real estate levies — a setup which puts onshore manufacturers at a significant disadvantage.

The scope of tax is also undecided, with officials weighing whether to apply this tax to all domestic sales from freezones or only to those that exceed a specific percentage of a company’s total output. The goal is to ensure freezones remain export-focused hubs rather than tax-advantaged backdoors to the domestic market, El Kilany explained.

Business community calls to amend the way solidarity contributions work are being heard

The solidarity contribution will be “considered as a tax-deductible expense,” El Kilany tells us. “The issue of the solidarity contribution has been resolved,” the deputy minister explained, with the move following the ministry responding to another call from the business community on the tax — which EnterpriseAM broke last week — that the contribution will become a tax on net income at a rate of 0.5-1% and not the current 0.25% levy on revenues.

The Finance Ministry will also cover the gap between collections from Universal Health Ins. System and the cost of running it. “This is a very sensitive matter and is being handled with extreme care because we don’t want to burden taxpayers, and on the other hand, we don’t want to disrupt the comprehensive health ins. budget,” El Kilany said.

Re-jigging tax brackets

Raising the lowest, tax-exempt bracket to shield low-income earners from the pressures of inflation is also under study, according to El Kilany. Depending on how far up the bracket is pushed, it could provide some employers a measure of relief as they deliver raises to help employees catch up with the impact of inflation that has eroded purchasing power over the past several years.

Don’t expect a blanket waiver on tax fines

The ministry is careful not to give the impression that waivers on overdue tax will be universal to avoid inadvertently encouraging non-compliance among those who already pay their tax on time. The compromise? The waiver may return, but it will be restricted to specific sectors the government wants to incentivize, rather than a general amnesty.

The smallest of companies is a big priority

The Finance Ministry is also sweetening the pot for small businesses and informal operators to join the official tax system. Beyond the existing simplified tax brackets, El Kilany said that the government is coordinating with MSMEDA to offer “very low-interest financing to encourage investment.” The move marks a strategic shift toward voluntary compliance, using access to capital — rather than just lower tax rates — as the primary incentive to formalize.

Sound smart: MSMEDA is the state agency responsible for development of small business and entrepreneurship. It replaced the Social Development Fund in 2017 and reports directly to the prime minister’s office. Roughly 98% of the nation’s private sector is made up of small and medium-sized businesses.

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