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Wednesday, 17 August 2016

Planning and Budget Committee’s VAT rate still not set

Planning and Budget Committee can’t decide on a baseline VAT rate: The House of Representatives’ Planning and Budget Committee cannot even agree among themselves on what the baseline rate for the value-added tax (VAT) should be. Committee member Moustafa Salem tells Al Shorouk that the committee is still deciding whether to have a rate of 10%, 12% or 14%, while deputy committee chair Yasser Omar announced that it will recommend a 12% rate. Salem’s most peculiar statement, however, was that the exemptions list will contain between 60-70 goods and services, a significant increase from the 52 set by the Finance Ministry. His statement, which were followed by some grandstanding, hints that the committee may at least consider a 14% rate contingent on an increase in the exemptions list.

Meanwhile, the board of directors of the Egyptian Union for Investors Associations (EUIA) voted to lobby for a 12% VAT rate, Al Mal reports. EUIA head Mohamed Farid Khamis repeated the usual schtick that the 12% rate would help mitigate the inflationary effects on the poor. He takes this logic one step further by recommending a 30% wealth surtax. The EUIA is set to meet with Prime Minister Sherif Ismail on Thursday to discuss the organization’s recommendations for the economic reform agenda.

Everyone has this bass ackward, folks: As was put to us yesterday, the point of the VAT is to broaden the tax base — to get every product and every establishment (from mom ‘n pop shops to whoever has the largest market cap on EGX this morning) to participate in the system. Even moderate estimates (here and here, both pdfs) suggest the informal economy is north of 35% of GDP. Get them all into the formal tax system, then we can tinker with rates, ladies and gentlemen.

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