{"id":581350,"date":"2023-02-08T00:00:00","date_gmt":"2023-02-08T00:00:00","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/hardhats\/contractors-are-the-latest-to-oppose-the-e-invoicing-system\/"},"modified":"2023-02-08T00:00:00","modified_gmt":"2023-02-08T00:00:00","slug":"contractors-are-the-latest-to-oppose-the-e-invoicing-system","status":"publish","type":"hardhat","link":"https:\/\/enterpriseam.com\/egypt\/hardhats\/contractors-are-the-latest-to-oppose-the-e-invoicing-system\/","title":{"rendered":"Contractors are the latest to oppose the e-invoicing system"},"content":{"rendered":"

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<\/span> Contractors are up in arms about the government\u2019s e-invoicing system:<\/span> The Contractors<\/span> Union has been fielding complaints from companies in the industry over challenges they face with complying with the government\u2019s e-invoicing system, industry sources told Enterprise. These companies say that the nature of their work and the industry at large don\u2019t match with the government\u2019s requirements for e-invoicing, pointing to time gaps between declared and realized revenues on their balance sheets, our sources tell us.<\/span><\/p>\n

REFRESHER-<\/span> The government has been working for the past couple of years to digitize all B2B and B2C invoices in a bid to give the government greater oversight over tax and reduce the size of the informal economy. The Tax Authority <\/span>launched a pilot<\/a><\/span> in late 2020 and has been gradually extending the system since then. Businesses are required to register their products and services to an account on the Tax Authority\u2019s platform, which they then use to log all of their invoices on the platform. The system allows the authority to track each transaction back through the customer\u2019s regular tax filings, which will include the invoice. Suppliers or contractors that have yet to join the e-invoicing platform have essentially been barred from doing business with local authorities as of December, <\/span>according to the Finance Ministry<\/a><\/span>.<\/span><\/p>\n

Contractors aren\u2019t the only ones who have opposed the e-invoicing system:<\/span> Self-employed professionals \u2014 including lawyers, doctors, and pharmacists \u2014 previously came out in <\/span>opposition to the system<\/a><\/span> at the end of last year, arguing that the costs of registering through the system were too high. These expenses include installing a designated system and paying monthly and annual subscription fees, they said at the time. <\/span><\/p>\n

The big problem:<\/span> Contractors have around 10 tax problems that make it difficult for industry players to comply with the e-invoicing system, head of the Contractors Union Mohamed Sami Saad told Enterprise. One of these hurdles is the issue of accrued revenues \u2014 income that a business has earned but has yet to receive payment for, deputy head of the Contractors Union\u2019s tax committee Shams Eldin Youssef told Enterprise. Contractors could book revenues months before they are able to realize payments, and this time gap could also extend between calendar years \u2014 for example, a contractor could book revenues on their balance sheet this year but only receive payment next year, but would have to pay taxes on the revenues this year, Youssef said. <\/span><\/p>\n

This issue of accrued vs. realized revenues has also been compounded by recent raw material shortages, which have extended project completion timelines<\/span>, Saad noted. Contractors \u2014 particularly small and medium companies \u2014 are \u201cseverely suffering\u201d from material shortages that make it difficult for them to complete projects on time.<\/span><\/p>\n

Altogether, the sector operates on loosely structured payments:<\/span> The sector simply does not have organized, structured invoices, Contractors Union member Mamdouh El Morshedy told Enterprise. Some projects extend over many years and could see the value of the contracts change over the project\u2019s lifetime, El Morshedy noted. <\/span><\/p>\n

Then there\u2019s the problem of all the off-the-book expenses:<\/span> Contractors pay informal royalties (known in Arabic as etawa) at work sites, which can account for up to 50% of their costs, a source from the Contractors Union who asked to remain unnamed told us. These \u201croyalties\u201d are essentially paid \u2014 often to groups who informally claim ownership of an area \u2014 in exchange for access and security, but they\u2019re not expenses that can be proven with invoices, our source explains. \u201cIt\u2019s not like paying for a service from a registered provider, or buying supplies from a marble company,\u201d where the transaction is proven by remitting a withholding tax at the point of sale, our source says. <\/span><\/p>\n

What about subcontractors?<\/span> The tax treatment for subcontractors is another problem the sector is facing with the e-invoicing system, Youssef and El Morshedy told Enterprise. Large contractors often rely on subcontractors for their projects, but are unable to prove this relationship \u2014 largely because these subcontractors are often informal players who are not legally registered. This informal element creates a tax burden on the companies, Youssef and El Morshedy said. The VAT Act does not exempt subcontractors from paying schedule taxes, but if the main contractor on a project remits the tax, the law considers that the subcontractor has also remitted the necessary tax. However, because subcontractors are not always registered (and therefore are not in the tax system), this can sometimes lead to double taxation. <\/span><\/p>\n

So, what\u2019s the ask?<\/span> Contractors want the government to raise the percentage of expenses that can\u2019t be proven above the currently allowed 7% to give them breathing room on some of these informal payments, Saad told us. Industry players are also asking for a grace period for small companies and subcontractors to get their ducks in a row with the e-invoicing platform, with requests to offer a window of at least six months to recover from the \u201cconsecutive shocks\u201d to the industry, he said. There are also proposals to create a special, tailored system for contractors using the e-invoicing system to make it fit the nature of their work and financial cycles. <\/span><\/p>\n

What the tax man has already done:<\/span> The Tax Authority has worked on streamlining procedures for contractors by simplifying the invoice form they need to submit to the authority and eliminating the need for several supporting documents, the authority\u2019s director of taxpayer services Mohsen El Gayar told Enterprise. The authority is also waiving taxes on inputs and allowing contractors to bypass the process of documenting or proving these expenses, and instead focusing primarily on sales invoices, El Gayar said. <\/span><\/p>\n

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