Egypt shelves its new Income Tax Act in favor of a third tax-facilitation package

The Finance Ministry has shelved plans for a new Income Tax Act, opting instead for a third package of targeted tax facilitations, two government officials tell EnterpriseAM. The Finance Ministry has begun preparing the package as the second round of tax facilitations enters its initial implementation phase.

Why now: “We had finished drafting the entire [Income Tax] bill, but rapid changes in the business environment alongside regional tensions did not give the tax community a chance to properly discuss it. We pivoted from that concept toward introducing new draft laws and targeted articles that will create a breakthrough in the investment and tax sectors,” one official says, adding that the idea of the Income Tax bill is “dead.”

The third package will be the last centered on facilitation and incentives, according to one of the officials. It will seek to settle outstanding taxpayer positions, resolve the remaining contentious issues left after the first two packages, and correct tax distortions affecting different productive sectors. Bringing informal businesses into the tax system will be the tax authorities’ main priority, sources said.

The stick comes after the carrot: “The fourth package will include penalties for tax non-compliance through deterrent mechanisms to ensure the state secures its dues, but only after we have closed all loopholes and supported all sectors toward growth through tax incentives,” according to one of the officials.

DATA POINT- The carrot approach seems to be working, already lifting tax revenues by around 1 percentage point of GDP last fiscal year, according to preliminary data cited by the officials. Tax collections rose 27.5% y-o-y to EGP 2.5 tn during the first 11 months of the last fiscal year, equivalent to 11.7% of GDP, the officials say, citing the Finance Ministry’s latest performance report. The sources attributed part of that increase to stronger compliance and the resolution of disputes under the first facilitation package.

REFRESHER- The first facilitation package established a simplified turnover-based regime for businesses with annual revenues of up to EGP 20 mn, offered a zero-penalty window for filing missing returns, accelerated dispute settlement, and introduced incentives aimed at bringing informal businesses into the formal economy. The second package has focused more heavily on corporate liquidity and administrative distortions. Its measures include ending arbitrary estimated assessments for future periods, accelerating VAT refunds for compliant taxpayers, allowing companies to recover income-tax credit balances incash, cross-settling taxpayer receivables and liabilities across state entities, and separating transfer-pricing reviews from ordinary commercial tax audits.

The ministry is also moving to digitize tax payments more broadly. The Egyptian Tax Authority is in the final stages of testing a new mobile app that allows individuals to calculate and electronically pay the 2.5% tax on property disposals, the officials say. The launch builds on the ministry’s broader rollout of end-to-end digital property-tax services as it looks to make registration, filing, exemptions, and payment available without taxpayers having to visit tax offices.