|Al-Ahram Weekly On-line
26 April - 2 May 2001
|Published in Cairo by AL-AHRAM established in 1875||Current issue | Previous issue | Site map|
The rush to tax
The new LE126.8 billion state budget for 2001-2002 -- "the largest in Egypt's history" as the soundbites have it -- has necessitated the generation of a ten per cent increase in tax revenues. According to Minister of Finance Medhat Hassanein the government has based its calculations on projected revenues of LE106.1 billion, two thirds of which -- ie LE 69.1 billion -- are accounted for in tax receipts. These include general taxes, customs, the sales tax (the second and third stages will be implemented in the coming financial year), in addition to development fees, the most notable of which is the new five per cent fee charged on cars. Parliamentary approval will be sought during the current session for the second and third stages of the sales tax and for the new fee on cars which together are expected to bring LE1.5 billion into the state's coffers.
A further LE11 billion pounds is expected to be forthcoming through pension and insurance funds, and LE9.7 billion through the issue of bonds and treasury bills.
The sluggish investment climate, though, has taken its toll on the state's capacity to manoeuvre within its spending targets. An unenviably long list of public companies, desperately in need of financial restructuring, depend on state subsidies for their survival. The commitment to providing employment opportunities has seen the creation of many more public sector jobs over and above the already bloated figure of 5.6 million, while subsidies for basic food supplies, agricultural and housing loans continue to rise. In addition, a further LE15 billion, is required to finance municipal government.
A three to five per cent increase in salaries and pensions had originally been budgeted but this was subsequently increased an average increase of ten per cent, a change Medhat Hassanein defended as being necessary to limit the impacts of economic reforms on limited income groups.
The shortfall in current account financing, then, is almost double that of the current financial year, with the net deficit likely to reach LE20.7 billion pounds. And even those measures already in place -- in particular the imposition of the second and third stages of the Sales Tax -- have begun to generate discontent. Some 150,000 additional traders will fall under the umbrella of a tax law that has already caused endless legal disputes between producers and importers and the Sales Tax Authority.
The five per cent charge imposed on cars looks set to cause as much confusion as the Sales Tax law. Will it apply to private and/or public transport, locally produced and/or imported cars? Will allowances be made for the size and kind of vehicles?
The news has hardly been welcomed by local automotive joint ventures which, already uncompetitive, could well be facing the prospect of annihilation once GATT directives are fully implemented. Nor are car importers happy. Understandably they are questioning how a policy of making cars more expensive within the Egyptian market can be squared with the commitment to open the market up to competition.
Recourse to new forms of taxation to fund the budget during a recession can only have a negative impact on the business sector.
At a time when it has become a matter of urgency to generate higher levels of more efficient production, it does not seem sensible to be activating fiscal policies that can only adversely affect the supply side of the economy.
The suggested new tax mechanisms bear all the hallmarks of a rushed job. The package, it would appear, is destined to be piecemeal rather than comprehensive.
Sadly, the urge to implement new taxes, rather than reform the existing, obsolete system, became the priority. And tellingly, any reforms, according to Hassanein, have now been relegated to next year's parliamentary session.
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