Egypt tax revenues to rise by 32% next fiscal year amid IMF-mandated austerity measures

Reforms including more rigorous tax collection and reduced subsidies come as country receives more than $50bn from creditors

Bread is delivered in central Cairo. Many Egyptians cannot afford staple goods, with lower-income households being worst hit. AFP
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Egypt is set to sharply increase its tax revenues in the 2024-25 fiscal year beginning on July 1, as the government pushes forward with austerity measures mandated by the International Monetary Fund and other foreign creditors in return for more than $50 billion in financial assistance.

According to Egypt's draft budget, tax revenue is projected to rise by 32 per cent to 2 trillion Egyptian pounds ($42 billion), after growing 38 per cent between the current fiscal year and the preceding one.

The latest projection comes despite an increase in the income tax exemption threshold to 60,000 pounds this year.

Significant contributors to the surge included a 32.4 per cent increase in VAT tax revenues and a 31.6 per cent rise in income tax revenues, according to the draft budget.

Tax revenue from the Suez Canal is also set to jump as the Egyptian pound has depreciated to more than 47 to the US dollar, inflating the value of dollar-denominated canal tolls in domestic currency terms.

VAT revenue will have soared by nearly 112 per cent in the past four years, from 339.7 billion pounds in 2020-21 to a projected 720 billion pounds in 2024-25.

Surging levies

Income from the income and capital gains tax, which includes levies on government employees, private sector workers, capital gains and corporate profits, is set to rise to 782 billion pounds next year from 594.4 billion this fiscal year.

This is driven by a projected 52 per cent annual increase in taxes collected from the Suez Canal, to 157.2 billion pounds, up from 103.7 billion during the current fiscal year; a 26.4 per cent rise in tax revenues on government workers' salaries to 170.6 billion pounds; and about a 30 per cent surge in corporate tax revenues on oil companies and foreign partners.

Property tax revenue is budgeted to increase by 34 per cent to 232.7 billion pounds, largely due to higher levies on government debt instruments and a 32.3 per cent rise in vehicle and drivers' licence tax and fees.

Revenues from taxes on cigarettes and tobacco are set to increase by 21.4 per cent to 410 billion pounds, while duties collected on carbonated and flavoured water are expected to increase by 25.8 per cent to 8.2 billion pounds.

Revenues from levies on water, electricity, gas and telephone contracts are set to rise by 25 per cent, as are revenues from levies on gas, electricity and butane gas consumption.

Government revenues from levies on entertainment venues are expected to surge 320 per cent, while processing revenues from fees on passports are expected to increase by 132.9 per cent.

International trade tax revenues are also projected to rise by 84.1 per cent to 179 billion pounds, driven by a 70.8 per cent rise in customs duties revenues and a 78.7 per cent increase in various fines.

To explain the projected increase in revenues, Finance Minister Mohamed Maait issued a statement on Tuesday night asserting that tax rates, especially for foreign investors, have not been raised and that they remain the same as the current fiscal year.

He explained that the anticipated rise in revenues - and not rates - will be driven by efforts to modernize the tax system, expand the tax base, combat evasion, integrate the informal economy, and collect taxes on e-commerce transactions.

Cutting back on subsidies

The steep rise in tax revenues comes as the government rolls back food, fuel and education subsidies and sells off state assets as part of a wider economic reform programme agreed with the IMF in exchange for an $8 billion loan deal and with other foreign partners.

A delegation from the IMF is currently visiting Cairo to conduct the third review of the country's reform programme, which could unlock a third tranche of $820 million if the fund is satisfied with the country's reforms so far, an official from the Central Bank of Egypt told The National on condition of anonymity.

The fund had requested that the Egyptian state reduce public spending while maintaining a tight monetary policy to curb inflation and make room in the state-dominated economy for the private sector.

The austerity measures are stirring anger and anxiety among most Egyptians, who are already grappling with record-high inflation.

Last week, the Parliament also approved a controversial law allowing private companies to take over the administration of public hospitals, sparking outrage and fear among lower-income citizens who rely on medical establishments for affordable health care.

In a speech on Sunday, President Abdel Fattah El Sisi addressed the nation's economic woes, painting a grim picture of the challenges, and asked citizens to prepare themselves for more hardship.

Mr El Sisi cited rapid population growth and rising subsidy costs as key factors that were straining the country's resources.

While he proposed cost-saving measures such as mixing 20 per cent corn into subsidised bread, which he said would save the government $400 million to $600 million, critics argue such steps are merely sticking plasters to support Egypt's flawed economic model.

The proposed measures, while potentially saving money in the short term, do not address the underlying structural issues that have led to the current economic crisis, they say.

Updated: May 29, 2024, 4:58 PM