The Finance Ministry is reviewing the VAT Law with a view to scrap exemptions on some goods and services, a senior government source tells EnterpriseAM. The move is designed to bolster tax revenues while allowing for income tax brackets adjustments to support low-income earners, the source added.

Why it matters: VAT is one of the state’s primary revenue engines, contributing EGP 428 bn out of a total EGP 961.6 bn in tax revenue during the first five months of the current fiscal year. Despite cooling inflation, revenues are growing due to July’s legislative reforms affecting crude oil, cigarettes, and construction, according to our source.

What’s in the cards?

A break for professional services firms? The study proposes reducing the number of table tax items and moving toward the standard rate of 14% instead of the current 10% for industries including professional services and cinema production. The firms would also be allowed to deduct input taxes, boosting their competitiveness against imports.

Scrapping training services exemptions: A proposal to end exemptions for training services — deferred last year — is back under review, with plans to move these services from a zero-rate to the standard VAT rate.

A simplified sugar tax: The Ministry is looking at a unified rate (10% or 14%) for sugar used in manufacturing (juices and beverages) to bypass the complexity of progressive tiers. “We are moving toward a unified rate to ensure accurate accounting,” the source noted.

Good news for manufacturers: The source expects the proposed VAT amendments to be “well-received by the private sector.” Currently, goods under the reduced table tax do not enjoy input tax deductions, which can squeeze their margins compared to fully finished imported goods. Moving these items to the standard regime will enhance the competitiveness of local manufacturers by allowing them to recover taxes paid on production inputs.

Our take: The shift is in line with the Finance Ministry’s recent push to hit the “reset” button with the private sector. It also aligns with the IMF recommendations to review tax treatments for 19 specific commodities to raise revenue by 1-2% of GDP annually.

What’s next: Expect the finalized study to be part of the FY 2026-27 budget draft, as the changes require legislative amendments and parliamentary approval.

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