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Thursday, 9 February 2017

Changes to the income tax are on the table

Changes to the tax code are coming, whether in the form of a new law or amendments. The Ismail government is considering the introduction of an earned income tax credit to replace the current list of exemptions. Other changes will include harmonizing the code with the incentives outlined in the Investment Act now being considered by the House of Representatives, said Deputy Finance Minister Amr El Monayer.

The mere notion of amendments to the tax code has touched off a wave of complaining: Unnamed sources in government tell Al Mal that changes to the tax code will take the form of amendments to the existing body of law, and that appears to have incensed the newspaper, which says this would mark the seventeenth time the tax code has been amended since coming into force in 2005 — and despite a promise at EEDC in March 2015 that policy stability would be the order of the day. Meanwhile, PwC partner Abdullah El Adly says the number of amendments to the code is worrying and suggests that the move hints at instability in the government’s tax policy and will be interpreted as such by investors. The head of taxation at the Federation of Egyptian Industries stressed that the upcoming changes should come with a clear statement that tax policy will remain stable in the long term — a big ask for a government rumored facing a cabinet shuffle before month’s end, let alone a nation in the midst of an IMF-backed reform program.

The devil is in the details, but the introduction of an earned income tax credit could be a positive development. We understand concerns about policy stability, but as we see it, policy stability simply means “do not make the process of paying taxes more tedious, do not radically change your philosophy of taxation, and above all else do not increase rates.” The notion that investment incentives — widely supported in the business community — could be introduced without tweaks to the tax code is simply ludicrous. As for the preoccupation with whether it’s best to introduce amendments to the existing code or a new tax code in total as suggested by Finance Minister Amr El Garhy last month? Have a look at the US code and its mess of loopholes and exemptions — there’s nothing wrong with a new code.

Focusing on the mechanics of whether tax codes change through piecemeal amendments or full overhauls is exactly backward — it’s a focus on process at the expense of what really matters: Policy.

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