Egypt introduces limited VAT amendments to broaden tax base, correct distortions - Economy

Al-Ahram Weekly

29-06-2025

Egypt has introduced limited amendments to the Value-Added Tax (VAT) system to broaden the tax base and correct specific distortions in support of increased spending on human development, according to a statement by the Egyptian Tax Authority (ETA) on Sunday.
During its plenary session on Sunday, the Egyptian House of Representatives passed a draft law submitted by the government that raises the value-added tax (VAT) rates.
The ETA stated that the adjustments were made in response to requests from representatives of several key sectors.
"There will be no changes to VAT exemptions for essential food commodities and health and educational services, and the general VAT rate will not increase," the statement indicated.
These reforms aim to enhance tax equity, facilitate the transition to electronic systems, and broaden the tax base in accordance with standards established by the World Health Organization (WHO), the World Tourism Organization (UNWTO), and other recognized international best practices.
To reduce burdens on the contracting sector, the amendments include subjecting construction services to the general VAT rate instead of the 5 percent schedule tax, while allowing contractors to deduct all VAT paid on input goods and services.
This could lead to lower service costs, as taxes paid on inputs will be deductible from the tax base.
Contractors will also have the right to deduct or reclaim VAT paid on machinery and equipment used in delivering their services.
Encouraging contractors to document their purchases from suppliers fully will also help in broadening the tax base.
The statement clarified that shops and administrative units located in non-commercial areas remain exempt from VAT.
However, administrative units in commercial locations such as malls and shopping centres are subject to a one percent tax on their sale or rental value.
This is intended to harmonize tax treatment between commercial retail spaces and commercial administrative units.
Meanwhile, crude oil, not petroleum products, will be subject to a 10 percent schedule tax, the authority said.
It emphasized that this amendment will not lead to any increase in local fuel prices, as the Egyptian General Petroleum Corporation (EGPC) is the sole purchaser of crude oil in Egypt. Moreover, the tax cost is already factored into the corporation's upcoming fiscal budget, with expected efficiency savings offsetting the cost.
In response to requests from companies operating in Egypt, the VAT amendments also include adjustments to cigarette tax brackets and a modest increase of 50 piasters in the specific tax rate, the first such increase since 2023.
The changes also shift the taxation of alcoholic beverages from an ad valorem tax based on selling price to a tiered and fixed schedule tax linked to alcohol content, in line with producer and industry demands and WHO recommendations.
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