Cash-strapped Egypt to introduce new taxes

Package to affect entertainment, foreign travel, luxury food items and duty free

A fruit and vegetable vendor in Cairo. Inflation in Egypt is at about 30 per cent. EPA

Egypt will next week introduce a package of new taxes affecting a wide range of items and services, including entertainment, foreign travel, luxury food items and leisure activities.

The taxes were proposed by the government and adopted late last week by parliament's budget and planning committee. They received preliminary approval on Sunday from the house's plenary session. A final vote was expected to be taken on the measures later this week.

Adopting the new taxes is virtually a foregone conclusion as the house is dominated by government supporters.

It is the latest measure taken by the Egyptian government to tackle the cash-strapped nation's deepening economic woes, made worse by the Russia-Ukraine war.

The Egyptian pound has already lost nearly half its value over a little more than a year, inflation is soaring to about 30 per cent and a foreign currency crunch is depressing imports and undermining local industries dependent on materials produced abroad.

One of the region's most indebted nations – owing at least $160 billion – Egypt's economic prospects are mired in uncertainty, prompting international financial houses to downgrade its creditworthiness rating.

Fuelling the uncertainty is the slow pace of implementing plans announced in January to offer investors stakes in state and military-owned enterprises as well as questions about whether it would be able to fulfil its foreign debt servicing commitments and its reluctance to allow a flexible foreign exchange regime.

The Egyptian government is also dragging its feet on implementing the International Monetary Fund conditions for a $3 billion loan it agreed to give Egypt late last year, particularly curtailing the massive role played by the state and the military in the economy to allow the private sector a bigger role.

The new taxes, which are expected to net the treasury $5 billion annually, include charging 100 Egyptian pounds (about $3.3) when travelling abroad, a 3 per cent charge on duty free purchases of more with a minimum of $1.50, 10 per cent charge on alcoholic beverages and 5 per cent on fizzy drinks, with a minimum of 0.25 pounds.

They also include a 10 per cent custom tax on a wide range of luxury items including shrimp, caviar, fresh or dried fruit, chocolate, electric shavers, hand and hair dryers, watches, lighters, coffee machines.

A new 5 per cent tax will also be charged on tickets in cinemas showing foreign films, 10 per cent on tickets for foreign circus shows and 20 per cent on scuba diving and its equipment.

In its pursuit of foreign currency, Egypt has recently decreed that foreign tourists buy train tickets in euros or dollars, dimmed lights in major squares and cancelled the night-time illumination of state buildings to make more natural gas available for export.

President Abdel Fattah El Sisi, the architect of Egypt's economic policies, has been defending his government's handling of the economy in the face of mounting criticism, chiefly over the expenditure of billions of dollars on mega infrastructure projects and the building of cities, including a new capital.

Critics contend that many of these projects are either unnecessary or could have waited and that the money would be better spent on battered sectors like health care and education.

Mr El Sisi argues the projects were desperately needed to modernise the nation of 104 million and prepare it for the inflow of more investment.