CAIRO: The newly approved five percent tax hike on high-income Egyptians will last for three years and the first payment will be due starting January 2015, the Ministry of Finance announced in a statement late Saturday.
Last week, the Cabinet approved a temporary tax ahead of upcoming presidential elections which former Defense Minister Abdel Fatah al-Sisi is expected to win.
“The five percent temporary tax will be applied on those whose incomes exceed one million EGP ($140,000) annually,” Minister of Finance Hany Kadry said in a statement released on the ministry’s official website late Saturday.
According to the minister, generating a new model for social responsibility, establishing new projects, and providing public services was among the key reasons behind the passing of the tax.
The Cabinet explained in a statement last week that those subject to the tax would be given the choice to direct their funds towards public education, health, agriculture, housing or infrastructure projects. The new tax needs to be issued by Interim President Adly Mansour to be implemented.
Since the ouster of former President Hosni Mubarak in the wake of the January 25 Revolution, Egypt has been suffering dramatic economic troubles registering a budget deficit of over 240 billion EGP during the previous fiscal year 2012/2013.
Kadry added the tax would also aim to provide more resources to support public expenditure programs, in an attempt to curb the growing budget deficit, higher prices and inflation rates, which dramatically affected low-income brackets.
Egypt’s budget deficit is expected to range between 340 billion-350 billion EGP during the coming fiscal year 2014/15, which amounts to 14-14.5 percent of the country’s GDP, if economic reform procedures are not adopted, Kadry had said during an April Cabinet meeting.
Kadry reduced the expected annual revenue from the five percent tax to range between 2 -3 billion EGP, down from 3.5 billion EGP, according to a statement released late Wednesday.
“The new bill comes in light of a wide vision for reforming the tax system by expanding the tax community and including new brackets without harming low-income brackets,” said the minister.
The tax was first proposed by a number of businesspersons to former Prime Minister Hazem al-Beblawy, before his resignation, to provide financial resources amid efforts to curb the growing budget deficit.
Welcoming the new tax, Ahmed Heikal, the chairperson of Citadel Capital, described the tax as “100 percent good,” Youm7 reported Thursday.
Financial analyst at HC Omar Radwan also 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 the cadres who could immigrate to neighboring Gulf states if additional taxes are imposed.
“Applying a value added tax (VAT) rather than the current sales tax will help achieve tax justice, and would be a step towards a stable social and political system, and consequently a better investment environment,” Radwan told The Cairo Post.
“If the government manages to promote tax justice, it would attract a great number of tax evaders to pay due taxes,” he added.