The real estate market is anticipating the effects of the new VAT amendment for contracting and construction services, which industry insiders told EnterpriseAM should lead to a fall in real estate prices. The amendment removes contracting services from the 5% schedule rate, making them subject to the standard 14% VAT rate instead, while allowing companies to deduct input tax.

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ICYMI- The House gave its final approval to the government-drafted bill amending the VAT Lawthis week, which included the new amendment for construction and contracting services.

The move is expected to stabilize real estate pricing as construction accounts for a big chunk of real estate development costs, a senior government official told EnterpriseAM. More than 70% of those costs are made up of materials and inputs that are subject to VAT, so allowing contractors to deduct this input tax will lower their effective VAT bill, which cuts project costs and gives developers room to adjust pricing.

The reform could pull informal contractors into the formal economy, our source said. As players seek invoices to claim tax deductions, more suppliers will be brought into the tax system, as they will have to register and pay taxes. That should improve tax collection while also bringing more price stability and boosting demand.

The move could also help companies invest more and grow their operations, with contractors now able to get VAT refunds for machinery and equipment purchases — a lot of which can be very pricey.

The Finance Ministry sees tax revenues from construction services tripling to EGP 6 bn in the fiscal year 2025-2026, despite lower effective tax payments by individual contractors. This is because contractors will now seek invoices from suppliers to claim deductions, broadening the tax base and pulling more suppliers into the formal system.

But what will become of SMEs? Small- and medium-sized contractors may struggle with the transition. Unlike large firms, which have formal bookkeeping systems and contract with registered suppliers, SMEs often work in the informal economy and lack access to input invoices, putting them at a disadvantage.

The changes also come amid a steep drop in public investment spending, which has already squeezed work volumes and liquidity in the sector, EFCBC member Shams Youssef told EnterpriseAM. While some companies will benefit from tax fairness due to their formal operations, smaller competitors operating informally will continue offering lower bids, Youssef said, adding that the union is responsible for protecting SMEs, which make up more than 50% of the market.

Contractors are calling on the government to limit the application of the new VAT system to new projects only and to give the industry time to adjust, Egyptian Federation for Construction and Building Contractors (EFCBC) member Mohamed Abdel Raouf told EnterpriseAM. The biggest concern is applying the changes to existing contracts, as it would hurt liquidity, especially for smaller firms.

What’s next? The EFCBC is set to meet with the head of the ETA next Tuesday to formally present their demands, Abdel Raouf said.

Your top infrastructure stories for the week:

  • Egypt is looking to launch ro-ro shipping lines with Saudi Arabia and Turkey before the end of 2025. This comes after the ro-ro line connecting Damietta Port with Italy’s Port of Trieste started operating in late 2024, reducing the time to send goods between the two ports to two and a half days, down from a previous six.
  • Egypt is in talks with a Chinese consortium to build the USD 440 mn fourth phase of the new capital’s light rail transit line. The Chinese state-owned companies — AVIC International and China Railway Major Bridge Engineering — will handle electromechanical works and train manufacturing, while local firms will take on civil works.
  • Suez Canal activity fell by 23.1% y-o-y in 3Q FY 2024-2025, as Red Sea disruptions continued to push traffic away from the waterway, according to data from the Planning and International Cooperation Ministry.
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