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Monday, 14 September 2020

Don’t expect a tax hike despite the covid-induced hit to state revenues

EXCLUSIVE- Don’t expect a tax hike despite the covid-induced hit to state revenues: The government was left with a EGP 115 bn tax gap and a shortfall on other revenue of the same approximate magnitude in FY2019-2020 as a result of the economic fallout caused by the coronavirus pandemic, Finance Minister Mohamed Maait told Enterprise. The Madbouly government is still working on its customary end-of-fiscal-year report, in which it details the year’s financial performance. Government bodies typically submit these reports to the Finance Ministry in mid-September, which are then compiled and shipped to the House of Representatives for a sign-off before becoming public, according to a recent circular (pdf) issued by the ministry.

The tax shortfall is about 15% of the EGP 760 bn or so in tax revenue the government originally expected to net last year (pdf), but is better than the EGP 125 bn tax gap Maait had forecast in June.

The government still expects tax revenues to grow 12.6% y-o-y in FY2020-2021, according to forecasts approved by the House in April. Those assumptions, however, will likely be tweaked following the release of 1Q fiscal data, Maait told us yesterday. Maait did not clarify whether the budget would be amended, saying it is still too early to tell what steps will be needed.

The good news: Don’t expect a tax hike: Maait reiterated that the government has no plans to raise taxes to make up for the massive shortfall last year, noting that the ministry’s plans to increase the tax base to 2.5% of GDP over the next five years doesn’t imply lining up tax increases, according to a statement denying “rumors” that circulated yesterday.

Egypt’s economy has responded well despite continued challenges: The virus’ continued presence is still making the movement of people, goods, and investments across borders more difficult, Maait told us. Egypt is taking steps in the right direction despite “huge” challenges from decreased mobility in an interlinked global economy, as well as the threat of a second wave and new lockdown measures, he said.

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