New law cuts taxes for Egypt’s poor
CAIRO, Egypt – EGYPT’S president signed a new tax law that cuts the amount paid by poorer Egyptians yesterday, in the latest move aimed at reforming the country’s economy.
The changes, which are more favourable than the previous tax law for the country’s most vulnerable, could boost Islamists in parliamentary elections slated for later this year.
The interim parliament, led by Islamist allies of President Mohammed Morsi, approved the measure last week.
Ahmed el-Sayyed el-Naggar, an economic expert at the Ahram Center for Political and Strategic Studies, argued that the tax reforms target an already struggling middle class, but leave the country’s richest people untouched.
Lawmaker Mohammed Gouda, a member of Morsi’s Muslim Brotherhood-affiliated party and a member of parliament’s economic committee, told The Associated Press that the law was aimed at protecting foreign investments, fostering economic equality and bolstering revenues.
The new tax law may also help reduce a burgeoning budget deficit projected to reach $28.5 billion in the coming fiscal year, around $1.7 billion more than this year.
Egypt is negotiating a $4.8 billion loan from the International Monetary Fund that could restore confidence among foreign investors in the economy. The IMF is pushing Egypt to overhaul its tax and subsidy system as conditions for the loan.
The IMF loan is one measure that could increase foreign currency reserves, about $14.4 billion last month, a third what they were before Egypt’s 2011 uprising. The country’s currency has meanwhile lost more than 10 per cent of its value since December.
The law signed Tuesday by Morsi stipulates that anyone who earns 5,000 Egyptian pounds or less a year ($716) will be exempt from paying income tax, as it was under ousted President Hosni Mubarak.
But the new law also takes into consideration everyday expenses, allowing up to 7,000 pounds ($1,000) in tax deductions. This technically expands the bracket of those exempt from paying income tax to include those who earn salaries up to 12,000 pounds ($1,700) a year.
The second, third and fourth-tier tax brackets have also been expanded, lowering taxes by around five percent on a range of annual incomes up to 250,000 Egyptian pounds ($35,000).
The new tax law will benefit the country’s poor and could help improve their living conditions, according to economist Wael Gamal.
It could also help bolster the popularity of Islamist parties eyeing elections expected to take place sometime this year, though no date has been set.
The uprising that toppled Mubarak was fuelled in large part by poorly paid civil servants and impoverished Egyptians tired of rampant corruption and striking social inequities.
Around 40 per cent of Egyptians live near or below the international poverty line of $2 a day. In a sign of the worsening economy, the percentage of people living on under $1 a day rose to 25 per cent in 2011, up from 21.6 per cent in 2009.
Among the other changes approved by parliament are assessing small and medium-sized businesses the same tax rate as multi-million dollar concerns.