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The Egyptian parliament on 29 August finally approved a law to introduce a value added tax (VAT) after several weeks of debate. The new tax, an integral part of the government’s plan to reform the economy and reduce the budget deficit, will start at the rate of 13% from 1 October, rising to 14% from July 2017, the start of the next fiscal year.
Parliament wanted to introduce this tax at a rate of 12% while the government insisted on its initial plan to set it at 14%, but at the end the above compromise was reached at the suggestion of Finance Minister ‘Amr al-Garhy. The government’s fiscal reform program began in July 2014 with a reduction in energy subsidies – since when oil prices have collapsed greatly helping Cairo achieve this goal (see chart) – and the levying of taxes aimed at slashing the budget deficit, which rose to 11.5% of GDP in fiscal 2015-16. A 14% VAT rate was expected to generate E£32bn ($3.6bn) in additional revenue for the 2016-17 budget, a member of parliament’s Economic Committee said. This implies that a 13% rate for nine months of the year will raise E£22.3bn.
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