Some contracting services may soon lose their VAT exemptions, with a Finance Ministry-formed committee looking into amending the laws around supply and installation services to remove their special tax treatment, a government source told EnterpriseAM. The move aligns with a broader effort to simplify the country’s tax system in a bid to raise tax revenues and create a more attractive investment environment, we were told.

The contracting industry has long called for changes to the current VAT system, under which supply and installation services are taxed at a flat 5% schedule rate without allowing companies to deduct input VAT. This setup has forced contractors to fully shoulder the VAT costs on both materials and services needed to complete projects, squeezing their margins and creating confusion over how to classify these services when bundled into larger contracting agreements. Across all sectors, there’s broad agreement for the introduction of a unified VAT rate to create a more transparent, predictable, and fairer tax system.

What’s next? The FinMin’s committee, in cooperation with the Tax Authority and the Federation for Construction and Building Contractors, is looking into replacing the VAT exemption for supply and installation services with a simpler tax deduction — a move that would reduce the current complications around calculating the tax when the services are part of a much larger contracting project.

The impact: The proposed changes could more than double annual VAT revenues to EGP 6 bn, up from EGP 2.3 bn currently, according to a government document seen by EnterpriseAM. The amendments are also expected to reduce disputes and estimation errors.

Who’s affected: The amendments would apply to supply and installation work across a wide range of infrastructure projects, including buildings, roads, bridges, airports, power plants, telecom networks, and renewable energy stations, according to our sources.

Contractors are cautiously welcoming the move: Companies involved in both supply and installation stand to benefit most, as they’ll be able to deduct VAT on inputs, reducing their tax burden, according to one contractor who spoke to EnterpriseAM. But those focused solely on installation could be left worse off, since they won’t have the same access to deductions. The source emphasized that the sector requires more than just rate adjustments — particularly when it comes to expense recognition, since many suppliers in the ecosystem are informal and do not issue VAT-compliant invoices.

Payment delays + tax deadlines = liquidity crunch: The sector is also weighed down by timing mismatches between tax payments and contractor dues. Contractors working on public sector projects often face delayed payments, but are still required to pay VAT on time, placing a strain on working capital. A federation official told EnterpriseAM that passing the full VAT burden to the service recipient would support SME players by easing financial pressures and improving competitiveness.

Machinery rules raise compliance headaches: Contractors have also raised concerns over tax treatment for equipment purchases. Under current rules, contractors must provide a certificate proving that a piece of machinery is contract-specific — and not for resale or lease — and that its value matches federation classification. Some firms view these requirements as excessive and administratively burdensome.

Contractors still footing the bill for unpaid VAT: In practice, even though the law stipulates that VAT is due from the entity awarding the contract, contractors are often left carrying the cost if the contracting party delays payment. In such cases, the amount is deducted from the contractor’s dues — an issue that the sector says requires urgent policy intervention.

The federation wants structural fixes: The Egyptian Federation for Construction & Building Contractors has submitted a memo to Finance Minister Ahmed Kouchouk outlining key demands. These include issuing a directive to make contracting authorities liable for VAT payment delays, extending filing deadlines for the sector from one month to three, and forming a tripartite committee comprising the ministry, the Tax Authority, and the federation to resolve implementation challenges — particularly those tied to undocumented expenses.

Signs of openness from the ministry: Federation head Mohamed Sami Saad told EnterpriseAM that the Finance Ministry is showing flexibility in addressing the sector’s concerns. Federation members will soon meet with the Finance Minister to discuss the various issues sector players face, one source told us.

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