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Tuesday, 10 November 2020

Maait promises no new taxes in fiscal update

Maait promises no new taxes in fiscal update: Egypt’s economy is expected to grow by 3.3% in the current financial year that began in July, but growth could hover between 2.8% to 3.5%, Finance Minister Mohamed Maait said in an interview with Kelma Akhira’s Lamees El Hadidi last night (watch, runtime: 16:24). This is a downgrade from the 5% figure Maait offered in June but identical to a Reuters poll of economists which last month also forecast GDP to grow at a 3.3% clip.

No new taxes on the horizon: The ministry has no plans to introduce new business or personal taxes, Maait said. The government already introduced a 1% salary tax earlier this year to help fund its response to covid-19, and Maait stopped short of promising that existing taxes would not be raised.

But it doesn’t sound like factories are going to get exemptions from real estate taxes: While Maait reiterated that the ministry is studying whether to exempt factories from real estate taxes, he also complained that it wasn’t generating enough revenue. Real estate tax provided less than EGP 5 bn, and the ministry is working to “simplify” the tax to boost revenues.

And really, why should manufacturers get breaks on real estate tax that other industries don’t? It’s time we stopped treating manufacturers as if they’re the only ones driving economic growth in this country.

Counting the costs of covid: Egypt suffered a EGP 220 bn shortfall in revenues in FY2019-2020 in the wake of the pandemic, Maait said. The country’s three-month lock earlier this year caused a drop in tax receipts while the shuttering of the vital tourism sector, which accounts for 15% of GDP, hit revenues hard. Meanwhile, CBE figures showed last month that remittances fell by 10.5% to USD 6.2 bn in 4Q2019-2020.

The situation began to improve in 1Q 2020-2021 though: Revenues rose by 18.4% y-o-y during the previous quarter, helped by a 14.1% increase in tax revenue, which Maait attributed to tax reform.

Emergency covid spending: The government has spent EGP 65 bn of its EGP 100 bn covid-19 warchest on purchasing medical supplies, staple goods, and paying employment grants for day laborers. Some EGP 70 bn has been spent on pensioners’ allowances and increases to public sector salaries and pensions, he said.

The government’s interest bill will fall this year: Maait forecasts that the government’s debt servicing bill will fall to EGP 540 bn during the current fiscal year, down from EGP 548 bn last year.

Maait said that Egypt would receive the remaining tranche of the IMF standby loan agreed earlier this year by the end of next June. The government has agreed to undertake structural fiscal reforms and amend customs regulations in return for the money, he said, without elaborating.

Export subsidies: The government will disburse some EGP 19 bn to exporters in the coming months, having paid out EGP 4 bn in subsidies so far during the pandemic. He added that there 400 companies have so far applied for payouts from the fund.

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