Experts demand reconsideration of income tax law in Egypt
Created: Mar 06, 2011,
modified: Jan 13, 2012,
overall rating: 0.000
Tax experts and officials called for the reconsideration of Egypt’s fixed income tax law (Law 91/2005), which was put in place in 2005, and the establishment of a progressive taxation system. Although the 2005 law was never implimented, they believe that change would help alleviate the current economic crisis.
Gouda Abdul Khalik, who was Minister of Social Solidarity and Social Justice in Ahmed Shafiq’s transition government, enthusiastically advocated for progressive taxation. Abdul Khalik stressed the need of putting the slogan “social justice” into effect and adopting distributional policies that would benefit the poorest citizens, thereby furthering social cohesion upholding the principle of citizenship.
A prominent official in the Ministry of Finance asserted the need to reconsider Law 91/2005 because it privileges the wealthiest sectors of society over the poorest ones by setting a fixed income tax rate of 20 percent regardless of income.
The source called for the drafting of a new tax law that establishes a reasonably progressive tax system. Although such a law was drafted when Midhat Hasanin was Minister of Finance, it never saw the light of day. The Ministry of Finance, tax authority officials, and legal consultants from the Ministry of Justice participated in drafting the law.
The source--who preferred to remain anonymous--said that the 2005 law had failed to achieve its goals, as tax revenues collected until the end of 2010 were collected in accordance with a pre-2005 tax law. The source called for the formation of a supreme council for taxation in order to avoid problems that arose between tax payers and the tax administration when attempting to implement the 2005 law.
For his part, Ahmed Rifaat--first deputy of the Minister of Finance and head of the Egyptian administrative authority--was not enthusiastic, from a practical point of view, about the idea of implementing a progressive tax law, but he did not exclude the possibility of reformulating the progressive tax system by using new and efficient mechanisms that contributed to attracting investments and did not negatively affect the overall economy.
Ashraf Abdul Ghani, president of the organization of Egyptian tax experts, criticized the idea of choosing a progressive tax law for overcoming the expected economic crisis. According to Abdul Ghani, a progressive income law can be implemented through two primary methods. The first method involves the creation of income brackets, which entails dividing incomes into a group of brackets and subjecting each income bracket to a different tax rate. This is the method adopted in the Egyptian tax system when it comes to taxing normal people (according to Law 91/2005).
The other method is often referred to as a progressive taxation system according to classes. This method involves subjecting the total income of the tax payer to a single tax rate that is determined on the basis of the class to which the taxpayer belongs.
Abdul Ghani asserted that the implementation of two methods of the progressive tax system by some countries has not protected them from the negative repercussions of the international financial crisis over the last few years. This necessitates looking at the success of using a fixed-progressive tax rate. In this system, both fixed and progressive tax rates are used to asses a person's total tax rate.
Abdul Ghani added that according to this system, the greater the person’s income, the more he or she will owe in taxes (and vice versa)--which is what progressive taxation does to a greater extent. For example, under the current Egyptian tax system (which sets a tax rate of 20 percent), someone who earns LE100,000 owes LE20,000 in taxes. If someone else makes a profit of LE1 million, they owe LE200,000. This means that the net amount owed by each individual taxpayer increases or decreases according to their income. According to some Muslims, this formula is the most just method of taxation, because it is the most similar wtih a divine system that determines the most important source of general revenue in the Islamic world, namely the zakat. The zakat collected on commercial property, for instance, is set at a fixed 2.5 percent rate of capital.
Al Masry Al Youm
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