Egypt is set to implement a comprehensive set of tax reforms starting next week, which will impact various goods and services, including entertainment, overseas travel, high-end culinary products, and recreational pursuits.
Government’s Proposal and Approval of New Tax Measures
The taxes were proposed by the government and adopted late last week by parliament’s budget and planning committee. They received preliminary approval on Sunday from the house’s plenary session. A final vote was expected to be taken on the measures later this week. Adopting the new taxes is virtually a foregone conclusion as the house is dominated by government supporters. It is the latest measure taken by the Egyptian government to tackle the cash-strapped nation’s deepening economic woes, made worse by the Russia-Ukraine war.
Economic Challenges Faced by Cash-Strapped Egypt
In just over a year, the Egyptian pound has experienced a significant depreciation, with nearly half of its value eroded. Furthermore, the country is grappling with soaring inflation, reaching approximately 30 percent, while a scarcity of foreign currency is hampering imports and adversely affecting local industries reliant on materials sourced from abroad.
One of the region’s most indebted nations – owing at least $160 billion – Egypt’s economic prospects are mired in uncertainty, prompting international financial houses to downgrade its creditworthiness rating.
Adding to the prevailing uncertainty is the sluggish progress in executing the initiatives unveiled in January, which aimed to offer investors ownership stakes in state-owned and military-controlled enterprises. Doubts have also emerged regarding Egypt’s ability to meet its obligations for servicing foreign debt and its reluctance to embrace a flexible foreign exchange system.
Government’s Emphasis on Promoting Investment and Economic Grow
The Egyptian government is also dragging its feet on implementing the International Monetary Fund conditions for a $3 billion loan it agreed to give Egypt late last year, particularly curtailing the massive role played by the state and the military in the economy to allow the private sector a bigger role.
To boost foreign currency reserves, Egypt has recently implemented measures such as requiring foreign tourists to purchase train tickets in euros or dollars. Other initiatives include dimming lights in major squares and canceling the night-time illumination of state buildings to free up more natural gas for export. These steps reflect the government’s efforts to address foreign currency constraints and promote economic stability.
Details of the New Taxes and Expected Revenue
The new taxes, which are expected to net the treasury $5 billion annually, include charging 100 Egyptian pounds (about $3.3) when travelling abroad, a 3 per cent charge on duty free purchases of more with a minimum of $1.50, 10 per cent charge on alcoholic beverages and 5 per cent on fizzy drinks, with a minimum of 0.25 pounds.
They also include a 10 per cent custom tax on a wide range of luxury items including shrimp, caviar, fresh or dried fruit, chocolate, electric shavers, hand and hair dryers, watches, lighters, coffee machines.
A new 5 per cent tax will also be charged on tickets in cinemas showing foreign films, 10 per cent on tickets for foreign circus shows and 20 per cent on scuba diving and its equipment.
President El Sisi vs. Public on Economic Policies
President Abdel Fattah El Sisi, the architect of Egypt’s economic policies, has been defending his government’s handling of the economy in the face of mounting criticism, chiefly over the expenditure of billions of dollars on mega infrastructure projects and the building of cities, including a new capital.
Critics contend that many of these projects are either unnecessary or could have waited and that the money would be better spent on battered sectors like health care and education.
Mr. El Sisi argues the projects were desperately needed to modernise the nation of 104 million and prepare it for the inflow of more investment.
