Egypt’s parliament approved on Sunday the long-delayed value added tax (VAT) at a rate of 13 percent for the 2016/17 fiscal year, but said it will rise to 14 percent the following year.
The parliament approved 30 articles of the VAT law out of 74. The rest will be discussed in a Monday session, state news agency MENA reported.
The new tax is scheduled to be implemented in September.
The delayed VAT law is part of the government's fiscal reform programme, implemented in July 2014, through which energy subsidies are cut and new taxes are introduced to reduce the country's ballooning budget deficit – estimated at 11.5 percent of GDP in fiscal year 2015/16.
Earlier on Sunday, a 118-page report prepared by the committees of legislative and constitutional affairs and the budget indicated that MPs were not able to reach an agreement on some of its articles, especially the VAT rate.
The parliament has been holding on to a VAT rate of 12 percent, while the cabinet is insisting on a 14 percent rate.
A 14 percent VAT rate was expected to generate EGP 32 billion in the 2016/17 state budget, according to MP Sayed Abdel-Al, who is a member of the Economic Committee in the parliament.
The VAT is aimed at avoiding tax evasion as it will be applied to each member of the production chain of goods and services to the final retail stage, instead of the current sales tax that is imposed as a one-off on the final sale to the customers.
The VAT that the consumer pays when the product comes on the market applies to the cost of the product minus the cost of the components that have already been taxed.
In May, Egypt's finance ministry listed 52 commodities and services that will be exempted from the VAT, including all essential food goods, dairy products, babies’ milk and their nutritional supplements and petroleum products.
Talaat Khalil, MP and member of the planning and budget committee, previously told Ahram Online that the committee was not only discussing the VAT rate but also revising and amending clauses of the draft law, including the exempted goods.
The government decided to slash its total subsidy bill in the current 2016/17 budget, which began in July, by 14 percent compared to the last fiscal year’s bill, estimated at EGP 154 billion.
“The VAT is regarded as a consumer tax, which means those who consume a lot will pay more,” finance minister Amr El-Garhy said earlier.
The minister said in July that the VAT may lead to price inflation ranging between 0.5 percent for low-income Egyptians and up to 2.3 percent for the upper class.
The VAT law is part of a government reform programme that has been endorsed by the International Monetary Fund (IMF), and has led to an initial agreement between the government and the global lender on a $12 billion fund facility over three years, which is expected to be approved by the fund's executive board in the coming weeks.
Egypt, which relies heavily on imports, particularly of foodstuffs, has been suffering a severe shortage of US dollars in the wake of political and security unrest that has scared off tourists and foreign investors, two major sources of hard currency.
