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Tuesday, 25 February 2020

Amendments to VAT Tax Act to raise sin tax in Egypt

LEGISLATION WATCH- Amendments to VAT Tax Act raises sin tax on tobacco products, imposes brand new taxes on e-cigs: Official tobacco prices will climb by varying rates on the back of amendments to the VAT Tax Act given a final nod by the House of Representatives yesterday, reports Masrawy. The end price of cigarettes and shisha tobacco, as well as e-liquids and heated tobacco used in vapes, have all increased, according to an official House report obtained by Enterprise (pdf).

Cigarettes: The changes changes tax bands for pre-rolled cigarettes — and tack additional flat taxes for all three bands. In addition to fixed tax rate hikes, cigarettes will still be subject to a 50% “schedule tax” stipulated by the VAT law and calculated on the final price. That will see cigarette prices EGP 1-3 as a result of the base hikes alone. The new fixed tax rates will be as follows:

  • The fixed rate for the first bracket will rise to EGP 4 from EGP 3.50 for cigarette brands sold in shops at less than EGP 24, up from a previous ceiling of EGP 18;
  • The rate for the second bracket will increase to EGP 6.50 from EGP 5.50 for brands prices EGP 24-35, up from EGP 18-30;
  • The rate on third bracket brands will climb to EGP 7 from EGP 6.50 for brands sold at more than EGP 35, up from EGP 30.

By way of background: We noted the amendments in an exclusive we ran back in July, with only minor changes made in the final tax rates passed yesterday. At the time, the changes were already approved by the cabinet economic group and were set to pass the House in October. They were stalled to contain inflation, government sources told us then.

Higher shisha, new e-liquid, Heets taxes: A new tax of EGP 2 per ml will be applied to e-liquids (which are used for vapes), regardless of nicotine content. Burned tobacco, such as the Heets brand used for devices such as tobacco heating system IQOS, will meanwhile incur a new tax of EGP 1.4k per kg. A 165% schedule tax will also be applied to locally produced shisha tobacco, up from 150%, while imported varieties will be taxed at 200%, up from 175%.

State coffers to bring in an additional EGP 9 bn: The increased rates will help the government increase sin tax revenues by up to EGP 9 bn in FY2019-2020, the parliament report notes. Tobacco taxes came in at EGP 58.6 bn in FY2018-2019.

Shops can no longer set their own prices for smokes: Tobacco stores and kiosks are now required by the Tax Authority to post a standardized price list, according to a statement by the authority. Vendors have been illegally overcharging consumers since the government last hiked the sin tax in 2018, the authority said.

But expect prices to increase further as companies factor in new costs: Cigarette makers should be out with statements starting today raising prices by more than the base tax rate hikes, as companies gauge the added costs, state-owned Eastern Company said, according to Al Mal.

The story is making international headlines thanks to the folks at Reuters and Bloomberg.

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