CAIRO: Egypt will temporarily impose a 5 percent tax on rich people with annual incomes of more than 1 million EGP ($142,000) an attempt to cover a major budget deficit and to provide better services for citizens, according to Cabinet statement released late Wednesday.
The interim government, headed by Prime Minister Ibrahim Mahlab, approved a proposal submitted on Wednesday by the Ministry of Finance to amend the Income Tax Law to assess a 5 percent temporary tax on those with more than one million EGP income annually. Interim President Adly Mansour is expected to issue a decree on applying this tax within the next few days.
Cabinet spokesman Hossam Qaweesh explained during a press conference late Wednesday that the Cabinet did not determine a specific period for collecting this “exceptional” tax.
“The Cabinet is also considering a proposal to impose this exceptional tax for only three years on both individuals and businesses,” Qaweesh added.
Egypt faced dramatic economic troubles since the resignation of former President Hosni Mubarak in the wake of the January 25 Revolution in 2011, registering a budget deficit of over 240 billion EGP during the previous fiscal year (2012/2013).
Minister of Finance Hany Kadry reduced the expected annual revenue from the exceptional to range between two to three billion EGP, down from 3.5 billion EGP, according to a statement released late Wednesday. The tax will be applied starting next year.
Head of the Income Tax Authority Mustafa Abdel Kader said in a phone interview on Al-Nahar channel that the new tax will be collected along with the income tax for 2014 if it is officially approved.
“An average revenue of four billion EGP is expected to result from applying this tax annually and will be allocated to implementing public projects,” Abdel Kader said.
According to the Cabinet statement, the revenues will finance public service projects in education, health, agriculture, housing, and infrastructure nationwide. The Ministry of Finance, in collaboration with Ministry of Planning and International Cooperation, will determine these projects.
Egypt’s budget deficit is expected to range between 340-350 billion EGP during the coming fiscal year (2014/15), which is worth 14.5 percent of the country’s Gross Domestic Product (GDP), if economic reform procedures are not adopted.
The tax was first proposed by a number of businessmen presenting a proposal to the former Prime Minister Hazem al-Beblawy before he resigned to provide financial resources amid efforts to fill the growing budget deficit.
Financial analyst at HC Omar Radwan welcomed the new tax, expressing hope that its revenues could help provide liquidity to cover the budget deficit.
Radwan, however, urged the government to take into account maintaining the cadres who could resort to immigration to the neighboring Gulf States while planning to impose additional taxes.
“Applying the value added tax (VAT) rather than the current sales tax will help achieve tax justice, and deemed a step towards stable social and political positions, and consequently better investment environment,” Radwan told The Cairo Post.
“If the government managed to promote tax justice, it will attract a great number of tax evaders and non-formal economy, known as gray economy, to pay tax dues,” he added.
The Ministry of Finance, on behalf of the government, has resorted to borrowing from banks operating in Egypt to cover the budget deficit, which is expected to range between 11 to 12 percent, at 200 billion EGP by the end of the current fiscal year (2013/2014), according to Ministry data.
The government plans to borrow 205 billion EGP in treasury bills and bonds during the 4th quarter of the current fiscal year (2013/2014), according the ministry’s schedule of government securities.