The finance and investment ministries have agreed to gradually reduce fees imposed on manufacturers, starting with the introduction of a new mechanism for calculating the solidarity contribution that goes towards the universal healthcare system, a government source told EnterpriseAM.

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REMEMBER- The General Authority for Investment and Freezones recently found that investors face a total of 2,224 administrative fees collected by 67 different government entities. In response to that, the Finance Ministry started mulling changes into how solidarity contributions are calculated and paid out.

So, what’s new? The solidarity contribution will be calculated based on net income rather than revenues, at a rate of 1% of net profit instead of the current 0.25% of revenues, the source explained.

The reasons behind changing the mechanism: Firms are currently facing two main issues with the solidarity contribution — contribution is calculated based on revenues, not net income, which increases its value and negatively affects companies' liquidity and paying it is a prerequisite for participating in government tenders and auctions, which forces companies to pay it.

REFRESHER- The cabinet agreed last year to change how the solidarity contribution is calculated. The amendments included a 0.25% healthcare tithe to fund the universal healthcare system calculated based on companies’ net income, instead of their total revenues. However, this was met with concerns from the Universal Health Ins. Authority.

Implementing the new mechanism could leave the universal healthcare system underfunded — to address this the Finance Ministry proposed measures to prevent the system from facing a funding gap and to identify new funding sources, given that solidarity contributions currently finance most of the system’s services.

State budget to cover the gap starting next fiscal year: The government has decided that the state budget will cover the funding gap between solidarity contributions and universal healthcare system expenditure starting fiscal year 2026-2027, according to the source.

ANOTHER METHOD TO HELP FUND THE GAP-

We could soon start paying more for a can of soda: Discussions are underway to develop proposals for a “health tax” on sweetened beverages, similar to those implemented in several Arab countries, another government source told EnterpriseAM. The move follows a World Health Organization (WHO) recommendation — in June the organization launched an initiative “urging countries to raise real prices on tobacco, alcohol, and sugary drinks by at least 50% by 2035 through health taxes in a move designed to curb chronic diseases and generate critical public revenue.”

How it would work: The proposed health tax — being developed by the health and finance ministries — would be applied progressively based on the sugar content of each product, the source said. Sugar-free and healthy drinks would be exempt, while beverages containing 5-9 grams of sugar per 100 ml would face a 20% tax, and those exceeding that threshold would be subject to a 30% tax.

When will it be implemented? The tax will be imposed once the required legislative amendments are finalized, the source added.

We had an idea this was coming: Sources told us in May that the government was considering introducing taxes on a range of goods and services for the first time — including soft drinks, sweetened and unsweetened juices, and non-alcoholic beer — as part of a broader plan to eliminate exemptions for 19-20 goods that receive them under the current law. However, the VAT amendments that came into effect in July did not include taxes on sweetened beverages.

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