The Second Package of Egypt’s Tax Relief Initiative

Tax policy is one of the most important fiscal policy tools that countries rely on to achieve economic and social development, as it plays a pivotal role in providing the necessary resources to finance public spending, redistribute income, stimulate investment, and achieve economic stability. With global and regional economic developments, tax systems have become required to strike a balance between increasing public revenues on the one hand, and improving the investment environment and supporting economic activity on the other.

In this context, the Egyptian state has embarked on the implementation of a comprehensive tax reform program in recent years aimed at building a modern tax system characterized by efficiency, transparency and fairness, in line with international best practices. This program was based on updating tax legislation, developing e-services, simplifying procedures, and enhancing trust between the Tax Authority and financiers.

The second package of the Tax Facility Initiative complemented the first package, confirming the government’s orientation towards adopting a new philosophy in tax administration based on partnership with the tax community, and encouraging voluntary compliance instead of relying on punitive measures. The package also aims to remove obstacles facing investors, support the competitiveness of the Egyptian economy, and stimulate the integration of the informal economy into the formal economy, thus contributing to achieving sustainable economic development and increasing investment and growth rates.

Objectives of the Second Package of Tax Accommodations

The second package aims to achieve a set of economic, financial, and administrative objectives that complement each other to develop the Egyptian tax system. At the forefront of these goals is to enhance mutual trust between the Tax Authority and financiers by simplifying procedures and reducing tax disputes, creating a more stable and just environment.

The package also seeks to alleviate the financial and administrative burdens facing investors and companies, which contributes to improving the investment climate and encouraging the private sector to expand its economic activities. One of the main objectives is to integrate the informal economy into the formal economy by providing incentives that encourage small and medium enterprises to register and join the tax system, which will lead to expanding the tax base and increasing tax revenues in a sustainable manner.

The package also aims to promote digital transformation in tax administration through the development of e-services, reduce reliance on paperwork, and speed up transactions, thereby increasing the efficiency of tax administration and reducing compliance costs borne by financiers.

The Most Prominent Modifications That Can Make the Second Package

The second package of the Tax Facility Initiative included a set of legislative and procedural amendments aimed at addressing a number of practical problems that emerged during the implementation of tax laws, while simplifying procedures, improving the investment environment, and enhancing tax compliance.

At the level of income tax, the package included an amendment to consider the Takaful contribution as a deductible cost when determining the tax base, in a way that contributes to reducing the tax burden on companies and achieving a greater degree of justice when calculating the tax due, as well as setting a mechanism for calculating the cost of acquiring unrestricted securities, and setting an amount of EGP 10,000 for bad debts that were decided to simplify the execution procedures and approve them within the deductible costs, in addition to allowing the extension of Article III of the law No. 30 of 2023 to include the tax periods until the end of 2025.

As for the value-added tax, the package included a number of important amendments, most notably the exemption of services provided by companies operating in non-banking financial activities from tax, in order to achieve tax neutrality among various financial institutions, in addition to exempting goods in transit and related services from VAT, in support of Egypt’s role as a regional center for trade and logistics. The amendments also included reducing the tax on some medical devices and supplies, and extending the suspension of the tax on some Machinery and equipment used in production and investment activities, which contribute to reducing the cost of investment and encouraging industrial expansion.

Within the framework  of the development of the capital market tax system, the package included the trend towards replacing the capital gains tax on the stock exchange’s transactions with a proportional stamp tax, with the aim of simplifying the tax treatment, stimulating investment in the stock market, and increasing liquidity within the EGX.

The package also included incentives for small and medium-sized enterprises, as it announced the provision of soft financing programs for the first 100,000 financiers who join the simplified tax system, encouraging informal enterprises to join the formal economy and benefit from tax and financing benefits.

As part  of the stimulus of voluntary tax compliance, the package introduced the “Tax Excellence Card” for committed financiers, which gives them a number of advantages, including faster access to services, priority completion of procedures, and benefiting from advance opinion services and technical support, which strengthens the partnership between the Tax Authority and financiers.

At the procedural and administrative level, the package focused on completing the digital transformation process through the development of e-services, simplifying the procedures for dealing with the Tax Authority, and reducing the time for completing transactions and tax examination, in a way that raises the efficiency of tax administration, improves the quality of services provided to financiers, and enhances the investment climate in Egypt.

Economic Analysis of the Second Package

The second package reflects a shift in tax thinking from a focus on increasing tax revenue by imposing additional burdens, to focusing on broadening the tax base and improving voluntary compliance. This approach is one of the modern methods of tax administration that has proven successful in many countries, leading to increased public revenues in the long run while reducing tax evasion rates.

The package is expected to improve the investment environment by reducing tax compliance costs, simplifying procedures, and providing incentives to investors, which will reflect positively on domestic and foreign investment rates. Easing the tax burden on some productive sectors may lead to increased production, new job creation, and higher economic growth rates.

On the other hand, encouraging the entry of informal enterprises into the formal economy contributes to tax fairness, increases the efficiency of resource allocation, and improves the quality of economic data, helping decision-makers to develop more accurate and effective economic policies.

The capital market adjustments are also expected to boost investor confidence, increase trading volume, and improve companies’ ability to obtain financing through the stock exchange, which will support economic growth and increase the efficiency of financial markets.

Despite the expected advantages, achieving the desired results requires continued coordination between the various government agencies, the speed of issuing executive regulations, the development of the technological infrastructure, and raising the level of tax awareness among financiers, in order to ensure the proper and effective implementation of these reforms.

Conclusion

The second package of the Tax Facility Initiative represents an advanced stage in the process of tax reform in Egypt, as it reflects a clear shift towards building a more flexible, efficient, and fair tax system. This package is not limited to providing tax exemptions or concessions, but also adopts an integrated vision aimed at improving the relationship between the state and financiers, enhancing mutual trust, encouraging investment, supporting digital transformation, and expanding the tax base through the integration of the informal economy.

These reforms are expected to contribute to improving the competitiveness of the Egyptian economy, increasing its attractiveness to local and foreign investments, and enhancing the country’s financial sustainability in the long term. The success of this package depends on the efficiency of its implementation, the continued development of the tax system, and the continuous interaction between the government and the private sector, in order to achieve a balance between maximizing public revenues and stimulating economic activity, and enhancing the process of comprehensive economic development in the Arab Republic of Egypt.

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