House passes VAT law — here’s everything you need to know.
House passes VAT with a long list of exemptions The House of Representatives approved yesterday the 74-article value-added tax (VAT) law, clearing the first obstacle on Finance Minister Amr El-Garhy’s quest for a USD 12 bn, three-year extended fund facility from the IMF.
The baseline VAT rate has been set at 13% for the first year and will increase to 14% beginning in year two. Some 56 goods and services are entirely VAT exempt, and the Finance Ministry also has a set of goods and services that will be subject to various fixed tax rates under the VAT regime but not subject to the baseline rate. If the law is implemented in October as Finance Ministry officials have suggested, state coffers should net EGP 20 bn from the tax in FY2016-17. The Finance Ministry anticipates future VAT receipts equivalent to about 1% of GDP. Finance Minister Amr El Garhy expects inflation will get a 1.3% bump as a result of the VAT, Al Ahram reports.
Amwal Al Ghad has published the full 74 approved articles, the highlights of which include:
If your annual sales were more than EGP 500k in the 12 months prior to the passing of the tax, you’ve got one month from enactment to register for the VAT. Importers of any goods subject to VAT must register with the “relevant authority” regardless of their top line. The executive regulations of the act will determine registration guidelines for all who do not meet the EGP 500K threshold. (See: Articles 16-21)
How will the VAT be applied? The VAT will be applied down the value chain and reflected in the final cost. The final cost of the good or service must also factor-in costs of components, transportation, customs duties and interest. The Finance Ministry will factor-in historical transactions between parties to ensure prices remain accurate and account, of course, for market forces. VAT will be applied on imports after customs duties are paid. (Articles 10-11)
Go clear-out that unoccupied family flat — you need more storage space. Businesses will need to keep receipts, records and other bookkeeping niceties for a five-year period. VAT tax returns are due in April, and you’ll need to remit your final VAT payment by 15 June at the latest. The executive regulations will determine the accounting standards for the law. (Articles 12-15)
Rebates and Incentives (ie: the lottery): If you’re exporting, you’re eligible for a VAT rebate on anything you sell abroad — provided the foreign exchange you generate is accounted for in the banking system as per CBE regulations. Rebates will also be offered on capital equipment and machinery for manufacturing. Incentives for consumers to collect their VAT receipts (read: the VAT lottery) will be outlined by the Finance Ministry in the executive regulations. The value of the lottery must not exceed 1% of VAT revenues. (Articles 30 & 74)
Goods traded within free zones will be exempt from the VAT, as will be anything bought using a grant or aid funding. Services by the Egyptian diplomatic corps are exempt, while goods and services purchased by the Armed Forces or for the purposes of national defense are also exempt. All contracts with the diplomatic corps and the Armed Forces will be exempt. (Articles 7, 23 & 28)
Fellow plutocrats, the House would dearly love to throw us all in jail: Criminal penalties for evading the VAT have been toughened — and MPs wanted to make them tougher still. Violators will face prison sentence of three to five years and an EGP 5,000-50,000 fine. (Article 67)
Timeline for implementation: The Finance Ministry has 30 days from the moment the law is enacted to hand down the executive regulations. Businesses have three months to become compliant under the grace period the law specifies; the Finance Ministry hopes to begin enforcing the law in October. (Articles 7 & 9)
Okay, so what’s exempt? 56 goods and services have been VAT-exempt, up from 52 in the draft that had been originally submitted to the House. A full draft of the approved exemptions list appears Youm7. Highlights include:
- Food: All basic raw and processed food, including livestock, has been exempt with the exception of luxury items such as caviar, imported fruits and vegetables, juices and concentrates. Food sold at “non-tourist” restaurants will also be exempt under certain conditions which will be determined by the Finance ministry at a later date;
- Financial services: Exempt are services that are the “sole purview of banks”; FX trading; non-bank financial services regulated by the Egyptian Financial Supervisory Authority; insurance and reinsurance; banking services offered by Egypt Post;
- Infrastructure and utilities: Production and distribution of power and water, with the exception of bottled water. Food and paper waste in addition to recycled goods are VAT-exempt;
- ADSL internet will be exempt for the first year of law only;
- Energy and mineral resources: crude oil, natural gas, butane are VAT-exempt. Gold and silver ores and other mined or quarried goods are also exempt;
- Healthcare: All non-cosmetic healthcare services are exempt, as are pharma products (both locally manufactured and imported). Equipment and items for blind and handicapped persons including vehicles, wheelchairs and prosthetics have also been exempted. The House had stated that it would not exempt private medical practices, but that appears to have been left out of the final draft of the list — or the final wording notes that services offered by private practitioners are basic medical services and so exempt;
- Education: All schools and educational institutions including international schools have been exempt;
- Transportation: Land (including taxis), air and water transportation of passengers outside the tourism industry is exempt. Exceptions include air-conditioned passenger land travel and car rental services. Certain types of ocean-going vessels, airplanes and their equipment have been exempt;
- Real Estate: The sale and leasing of real estate is VAT-exempt;
- Agriculture: Agriculture activities and services are exempt;
- Publishing and Media: Printed goods (magazines, books, notebooks and newspapers) are all exempt; news agencies will be exempt, while all media content broadcast for free will also be exempt.