In the line of fire
The People's Assembly is very soon expected to witness heated debates over three controversial laws tackling competition rules, income taxes and investment incentives, Gamal Essam El-Din reports
In the next few weeks the People's Assembly -- Egypt's lower house of parliament -- is expected to witness a series of bitter confrontations between businessmen, mostly belonging to the ruling National Democratic Party (NDP) and leftist MPs. At a 14 January meeting between President Hosni Mubarak and Prime Minister Atef Ebeid, Mubarak asked Ebeid to submit the long delayed anti-trust bill to the People's Assembly during its current session. The conflict may well begin when the bill the government has drafted comes up for debate.
According to Ebeid, Mubarak also asked the government to swiftly present the assembly with important bills dealing with investment incentives and income tax reductions. Ebeid elaborated that the three bills are aimed at regulating competition practices, modifying income tax brackets and creating a more favourable investment climate.
The revelation about the three bills was received with stinging criticism from two opposing forces. While leftists say that the three bills are largely aimed at advancing private business interests at the expense of limited-income classes, associations of businessmen believe that the draft of the three laws are by no means enough to get the market out of its five-year recession and push private investments forward.
Concerning the anti-trust law, economists from across the board argue that it comes too late. Bahaaeddin El- Ghamri, managing director of the People's Assembly Research Centre, told Al-Ahram Weekly that the government's failure to present parliament with an anti-trust law over the last 11 years -- since the privatisation programme was launched in 1993 -- has been detrimental to both the local market and consumers. According to El-Ghamri, combating monopolistic practices is essential in any free market system, and it is particularly important in emerging economies such as Egypt. "This is also important given the fact that in the last seven years there has been a surge in monopolistic deals that pushed prices on the local market to unjustifiable highs that have made poor citizens poorer," El-Ghamri said.
Leftist MPs argue that the anti-trust law was delayed for more than a decade because of the pressures which NDP businessmen mounted on the government. In the past month, leftists have singled out prominent NDP member and iron magnate Ahmed Ezz as taking advantage of his political status to monopolise the local reinforced steel market and manipulate its prices.
The final draft of the anti-trust law, as announced on 31 January, will consist of 25 articles arranged under the title "The Anti-Trust and Regulation of Competition Law". According to the bill's explanatory memorandum, it is aimed at tightening control on a number of monopolistic practices that can negatively affect free competition and expose consumers to financial risks and detrimental practices.
The bill defines a monopoly as the practice enabling certain individuals, a company, or a group of companies who have merged together to corner at least 35 per cent of the trading of a certain product or commodity on the local market. The bill states that any parties to such a merger, acquisition or takeover, should notify the Ministry of Internal Trade and Supply within 15 days of drawing up their agreement.
To guard against the emergence of monopolies, the draft law also decrees that an Anti-Trust and Competition Regulation Commission (ACRC) be established to oversee the licensing of mergers, acquisitions and takeovers and the investigation of complaints lodged on monopolistic practices.
Leftists argue that some of the bill's articles will, in themselves, render it unable to control private monopolies.
Abul-Ezz El-Hariri, a leftist MP, told the Weekly that the fact that the bill lacks retroactive effect powers and that individuals and consumer societies must pay LE10,000 per anti-monopoly complaint submitted to ACRC will nip the bill in the bud. "A bill without retroactive effect means that the monopolisers who toyed with markets of such crucial products as iron and steel, cement, tobacco, mobile phones, soft drinks, sugar and refrigerators will be left free to continue pursuing their anti-competitive practices," El-Hariri said.
El-Hariri also says that the anti-trust bill must be presented with another separate bill dealing with the protection of consumers. "This is absolutely essential in enabling individuals to form effective consumer societies that can challenge the monopolistic emperors and dynasties that have so far hindered the creation of any functioning anti-trust regime," said El-Hariri.
In their reaction, businessmen were more even more vocal. The Egyptian Businessmen's Association (EBA) complained that the law provides the internal trade and supply minister with sweeping arbitrary powers. A report made by Hussein El-Ibrashi, chairman of EBA's Legislative Committee, warned the supply minister's sweeping powers could be used to frighten away certain businessmen or investors. El- Ibrashi's report also deplores that the bill does not apply to state monopolies. Sectors such as electricity, gas and petroleum, water supplies and treatment and construction of roads will remain untouched by the new laws. "A law that does not tackle these monopolies by definition discriminates against the private sector," El-Ibrashi said.
The Alexandria Businessmen Association (ABA) also stipulated that the membership of the board of ACRC -- the regulating agency -- be balanced, including representatives of business associations, chambers of commerce, manufacturers, workers, financial businesses and judicial authorities. "The commission must also be run by a team of highly qualified experts on markets and competition rules. Further, it must undertake market research and compile correct statistics about markets in both Egypt and abroad," an ABA report said.
Commenting on business grievances, Prime Minister Atef Ebeid's economic consultant Hatem El-Qaranshawi emphasised that the anti-trust bill is by no means aimed at deeming size as the main criterion for labelling certain businesses as monopolies. "The bill is basically aimed at cracking down on detrimental monopolistic practices. A business controlling 10 per cent of a product market can pursue monopolistic practices more than another business controlling 90 per cent of the same market," said El-Qaranshawi. He argued that the existence of big businesses in Egypt is necessary for competing on an international level.
The People's Assembly is also gearing up to receive another controversial law: one aimed at modifying the Unified Tax Law (no.157/1981) to reduce tax paid by both limited-income citizens with fixed incomes and, on the other hand, by corporate businesses. Although it was proposed three years ago, this bill has never been submitted by the government to parliament. Following the flotation of the pound one year ago and the skyrocketing of food and service prices, pressure on the government to present parliament with this bill increased substantially.
According to Finance Minister Medhat Hassanein, the government hopes that the reduction of taxes would help soften the blow dealt to limited- income citizens by the one year old flotation of the Egyptian pound.
At the same time, Hassanein added, the government is also keen that the new tax reductions do not strip the treasury of a sizable proportion of its income. "Taxes account for no less than 43 per cent of the state treasury and we were keen that these reductions do not affect this considerable percentage in a dramatic way," Hassanein told the Weekly. He also explained that while government spending is rising by 11 per cent annually, state income is increasing by just 4 per cent each year.
In view of these considerations, Hassanein stated that about 8.7 million employees in both the private and public sectors will enjoy income tax reductions ranging from 20 per cent to 40 per cent. "This is to compensate the loss incurred by the two sectors following the flotation decision," said Hassanein. The bill will also reduce taxes levied on commercial and industrial businesses from the current 40 per cent to 30 per cent and 32 per cent respectively. In general, Hassanein said these reductions will strip the state treasury of LE3.3 billion in tax revenues.
Leftists reacted by demanding that tax for civil servants be reduced by at least 60 per cent. "The government must stop awarding businessmen any new tax reductions and focus instead on civil servants, who provide the treasury with three quarters of the total taxes supplied," El-Hariri told the Weekly.
El-Hariri added that he believes giving more tax reductions to around nine million civil servants will enhance their purchasing power and hence stimulate consumer spending on the local market. "This is highly beneficial to the economy in terms of getting it out of recession and generating more sale taxes in another way," El-Hariri said. He also thinks that most of the previous tax incentives were misused by businessmen. "They did not use their incentives to expand their activities and help fight the unemployment crisis," El-Hariri said. By contrast, the report issued by the EBA argues that the tax reductions provided in the bill to commercial and industrial activities are too small.
Closely related to the tax reductions is the bill aimed at amending the Investment Guarantees and Incentives Law (no.8/1998). According to Prime Minister Ebeid, almost five years after its implementation, it has been found that this law ultimately fell short of the hope that it would attract huge investments to the country.
The modified law, said Ebeid, will greatly facilitate investment measures and absolve them of stiff bureaucracy. The new bill is set to render the General Investment Authority the sole body to which investors will have to turn in order to have their proposed projects approved. As the law currently stands, investors need to gain approval from as many as 36 authorities before they can start implementing their projects.
Businessmen, however, said the law must be modified to grant them further tax and custom exemptions on imports of capital goods. Leftists, by contrast, do not think that businessmen deserve any additional investment incentives. "They widely misused the previous ones. Egypt does not need new investment incentives but urgently requires a more serious and hard-working private sector," El-Hariri said.
With no consensus on the parliamentary level there seems to be little hope that the new laws will significantly quell the growing discontent that is prevalent across Egypt's economic spectrum.