Egypt parliament agrees to introduce value-added tax

CAIRO – Egypt’s parliament has agreed to establish a value-added tax of 13 per cent, in a move authorities hope will generate much-needed state revenue and advance a reform program supported by loans from the International Monetary Fund.

State newspaper Al-Ahram reported Tuesday that the measure was passed in a session a day earlier, and that the VAT would increase to 14 per cent the following year. The tax will extend to a range of consumer goods and services, although lawmakers have said measures will be taken to reduce its effect on the poor and on the price of basic staples.

The measure had been long debated, but like subsidy cuts which have a history of stoking unrest in Egypt, had been put off for fear of a backlash. Earlier proposals to introduce the VAT immediately at 14 per cent were softened by parliament.

The decision comes just weeks after the IMF granted Egypt a $12 billion loan over three years, in a deal for which the introduction of VAT was seen as a prerequisite. The loan, subject to approval by IMF’s executive board, is aimed at helping stabilize Egypt’s falling currency, reduce the budget deficit and government debt, boost growth and create jobs.

Egypt’s economy has been struggling since the 2011 popular uprising that overthrew autocrat Hosni Mubarak, with high inflation, foreign currency shortages, and low levels of tourism and investment. Falling Suez Canal revenues, and the severe drop in tourism numbers over security fears, have severely reduced foreign currency income in the country.