LEGISLATION WATCH- New SMEs law to offer tax and non-tax incentives, could eliminate interest on loans for registered businesses: SMEs will receive a number of tax and nontax incentives, under new legislation being prepared by the government, to encourage them to join the formal economy, Vice Minister of Finance Amr El Monayer said yesterday, Ahram Gate reports. While tax exemptions have previously proved ineffective, the bill — which aims to lower the barriers of SMEs’ entry into the formal economy — will offer a simpler tax structure and relieve small businesses from administrative costs and processes, which are generally why they tend to shy away from going official, El Monayer explained.

Under the new law, micro- and very-small enterprises will be categorized into three tax brackets. For microenterprises, the Finance Ministry is considering imposing a single annual tax of “EGP 1,000, for example,” instead of having these businesses pay individual duties, such as income tax and value-added tax, El Monayer said. A similar system would apply to another bracket that covers independent occupations — such as taxi and truck driving, and crafts such as carpentry — and would be re-evaluated every five years. Very small businesses could be subject to a nominal income tax possibly as low as 1%, El Monayer added.

The government is studying the possibility of enshrining facilitated funding for registered SMEs at zero interest under the new law, El Monayer also said. Other non-tax incentives would be awarded to employees who register for social insurance and innovative businesses in tech and other scientific fields. The bill would also ensure SMEs access to all basic services and utilities.

All of this is good policy: As we’ve explained before, we’re rabidly in favour of any combination of tax and non-tax incentives that bring more companies into the tax system. Why not give a complete, time-limited income tax holiday to SMEs that opt to go legit and become part of the formal economy? The state can then raise taxes for them to a reasonable and appropriate level when that holiday runs out.

As for their obligations under the law, registered SMEs would have to open bank accounts and use electronic receipts to keep track of their transactions, the Vice Minister said, adding that input from civil society on the tax structure is encouraged. The House of Representatives is expected to receive the bill during their current legislative term.

In other news from the Finance Ministry, legislation now being drafted could “unify tax procedures,” ministry tax adviser Ramadan Seddik tells Ahram Gate. The bill would resurrect the Supreme Tax Council and give it authority to participate in new tax-related legislation.