• Planned VAT law part of widespread reforms
• Tax will lead to revenue yield of 1.6 per cent of GDP
• IMF welcomes introduction of VAT

Egypt should not rush the introduction of the planned new VAT law, says Jeanine Daou, partner and Middle East leader for indirect taxes and fiscal policy at consultancy firm PWC.

“The biggest challenge is communication and to give enough time for businesses to prepare for implementation,” she tells MEED on 25 February.

Plans to introduce VAT to replace Egypt’s current General Sales Tax (GST) form part of Egypt’s continuing efforts to reform its economy, drive growth and attract more foreign investment.

Under Egypt’s five-year strategy launched in October 2014, VAT legislation is expected to be implemented in the second half of the current financial year.

It is anticipated that the revenue yield from the VAT will be 1.6 per cent of GDP on a full year basis.

The planned introduction of VAT has been widely welcomed by investors and analysts as an effective means of broadening Egypt’s tax base.

The Washington-based IMF praised plans to introduce VAT in its latest article 4.

The assessment also noted that the current Egyptian government has already managed to bring about a positive “turnaround” to the country’s economy.

Daou says that while VAT is seen as one of “the most efficient and business-friendly” forms of consumption tax, the government will need to effectively communicate with consumers and businesses how and why they are introducing the tax.

This will avoid resistance to the new tax and ensure better and more widespread compliance.

Commenting on the timeline planned, she says: “We would prefer it takes a little longer. It is still possible the Egyptian Government issues a law soon and gives only three months for businesses to adapt. This is one possible option, but we believe it is not ideal as businesses would require sufficient time to prepare for such a significant change.”  

The Egyptian government is working on other taxation reforms, including a simplified tax system for small and micro-sized companies, many of which operate only on a cash basis and avoid paying tax.

As well as boosting revenues, the government is also reviewing its expenditure, which includes the phasing out of costly energy subsidies.