EXCLUSIVE- Gov’t closing in on tax incentives to convince medium-sized enterprises to go legit: The finance and trade and industry ministries are approaching an agreement on tax incentives for medium-sized enterprises to encourage them to join the formal economy, a senior government official told us. These entities — which the SMEs Act would define as outfits with capital of between EGP 1 and 100 mn — could be required to pay as little as half the taxes they owe from before going legit. The act would also streamline the process of acquiring licenses to encourage more businesses to join the formal economy, our source said.

We obviously think this is really smart policy and hope lawmakers agree.

So how will medium-sized companies be taxed? Companies with capital of between EGP 1 mn and EGP 20 mn will be required to pay 50% of taxes owed retroactively with a cap of EGP 200,000. The cap for companies with capital between EGP 20 mn and EGP 50 mn would be set at EGP 400,000, while the cap for those with capital between EGP 50 mn and EGP 100 mn would be set at EGP 800,000.

And what about after they go legit? Companies that are incorporated would pay the standard 22.5% tax on profits, while businesses running behind individuals would be subject to the standard progressive income tax system.

Small and micro enterprises could get separate incentives, as we previously noted. These could include forgiving back taxes when going formal and only paying a flat tax and raising the minimum required revenue to register for VAT. The Finance Ministry has concluded drafting the act and will review it before putting it up for public debate ahead of introducing it to the House of Representatives.