The value-added tax (VAT) had been the cornerstone legislation of the Ismail cabinet’s reform agenda for 2016, and it proved to be one of the most difficult to bring to life. The years-long journey to get the law passed was so exhausting, you could get a fairly detailed history by reading our last year in review. As the main reason behind its failed implementation all these years stemmed from the government fearing a public outcry at the resulting inflation (a concern exacerbated by a grandstanding parliament), much of 2016 was devoted to simply making the bill more palpable to the street to get it out the door. The VAT was eventually passed in August, just in time for the IMF delegation’s arrival (it had made passing the VAT a condition of receiving the USD 12 bn loan).

At the core of the battle to get the VAT passed were two main issues: timing and more importantly, the baseline rate. The ministry had anticipated revenues from the VAT to reach EGP 32 bn in the FY2016-17 year, assuming it was implemented in October and the baseline rate was set at 14%, far lower than most countries, Finance Minister Amr El Garhy told the House. Anything lower would risk Egypt losing EGP 13 bn from those projections. El Garhy promised MPs that the tax’s inflationary effect would be around 1.5%. After fierce debate in which MPs tried to push a rate of 10-13%, and industries of all description pushed to keep the rate low, a compromise was struck that would see the baseline rate set at 13% for the first year of the VAT and then raised in year two. This cut the ministry’s projected revenues to EGP 20 bn. The bill was signed into law on 8 September with a mandate for all businesses making EGP 500K or more having one month to register, something which the Federation of Egyptian Industries vehemently opposed. It also mandated that the Finance Ministry had one month to issue the executive regulations, which had not come out until late December 2016.

Another crucial point for contention on the VAT was the exemptions list. Almost every business and industry lobby pushed for their industry to be placed on the exemptions list. If that wasn’t enough, members of parliament used a very broad definition of “essential goods” in its scrutiny of the act, with some even suggesting that small refrigerators should qualify. In the end, the Finance Ministry — struggling to meet its October deadline for implementation and attempting to get it passed to secure the IMF loan — allowed 52 goods and services to stand as VAT-exempt. Surprisingly, tourism, which has been stagnating particularly since the Metrojet plane went down in 2015, was not granted an exemption.

In the end, expediency and consensus had led to a more watered down version of the VAT than was originally intended. The cost of these compromises, and of the delay in issuing the regs, has yet to be determined and will be a key issue in 2017. Still, the bill’s passage in the face of significant bellowing from some in the business community has to stand as one of the Ismail government’s key legislative accomplishments of the year. With the law in place, the government can adapt it and amend it according to circumstances. The next challenge will be on the rollout and enforcement. Will people accept it, pay it and start keeping receipts? 2017 will be the year to determine that.