The government submitted a draft law amending some provisions Tax law on the value added issued by Law No. 67 of 2016, and referred it to the House of Representatives for discussion and issuance.
The amendments to the Value Added Tax Law No. 67 of 2016 come within the second phase of the tax facilitation initiative implemented by the Ministry of Finance, with the aim of reducing the burdens on investors and producers, improving the efficiency of the tax system, and supporting the industrial and health sectors, while addressing a number of existing distortions in the current application of the law.
The proposed amendments include a set of incentives and facilitations for financiers, in addition to subjecting some activities and goods to new tax treatment, in order to achieve a balance between encouraging investment and increasing the efficiency of tax collection.
Reducing the medical device tax to 5%.
One of the most prominent proposed amendments is subjecting medical devices to value-added tax at a reduced rate of 5% instead of the general price of 14%, similar to the tax treatment applied to machinery and equipment used in production.
This amendment aims to support the health sector and reduce the cost of medical equipment and devices, which will reflect on the health services provided to citizens, as well as encourage investment in local medical industries.
Exemption of transit services from value-added tax
The draft law also stipulates that value-added tax is not due on services provided for goods in transit through Egyptian ports, in a step aimed at strengthening Egypt’s position as a regional and logistical center for global trade.
This comes as a continuation of the current transaction that exempts transit goods themselves from tax, which contributes to increasing the competitiveness of Egyptian ports and attracting more international trade traffic.
Extending the period of deferral of tax on machinery and equipment to 4 years
The amendments included increasing the period of suspension or postponement of payment of the tax due on machinery and equipment used in industrial production from two years to a maximum of four years, until their installation and actual operation.
This advantage was also extended to include medical devices used in industrial production, such as equipment for manufacturing prosthetic limbs, medicines, medical solutions, and blood plasma production devices, provided that this equipment is exempt from the tax when it is actually used in production activity.
Accelerating the return of the credit balance to financiers
In response to the demands of the business community, the government proposed reducing the period required to return the taxpayer’s credit balance from six consecutive tax periods to only four periods, that is, from six months to four months.
Small projects whose annual business volume does not exceed 20 million pounds, and which are subject to the new tax incentives and facilitation law, were also granted an additional advantage in the form of their right to recover the credit balance after only three months.
Subjecting the rental of administrative units to tax
One of the most prominent new provisions is subjecting the rental of buildings and administrative units to value-added tax at the general rate of 14%.
The government explained that this measure will not represent an additional burden on taxable activities, as the taxpayer has the right to deduct the tax paid on rent from the tax due on him, while activities that do not have the right to deduct can consider this tax among the expenses and costs that must be deducted when calculating the income tax.
The project excluded from this subjection buildings and units used in the management of religious, charitable, social, educational and health activities.
Exemption of dialysis supplies from value-added tax
The amendments included expanding the scope of tax exemptions to include dialysis machines, kidney filters, and their various supplies and parts, which contributes to reducing the cost of treating patients with kidney failure and supporting the medical sector.
The project proposed unifying the tax treatment of financial services provided by various entities, whether banks or companies subject to the supervision of the Central Bank, the General Authority for Financial Supervision, or the National Postal Authority.
Under the amendment, all these services become exempt from value-added tax, without distinction between the entities providing them, in a way that achieves equality and tax neutrality.
Imposing a schedule tax on natural gas
On the other hand, the draft law excluded natural gas from the list of goods exempt from value-added tax, in preparation for subjecting it to a schedule tax of 20 pounds per thousand cubic feet. According to the explanatory memorandum, this measure aims to contribute to alleviating the burdens on the state’s general budget.
Giving the local product the right to a tax deduction
The amendments included adding a new text that gives local producers the right to deduct tax on sales of machinery, equipment and medical devices subject to special tax treatment.
This amendment aims to achieve equality between local and imported products, especially since imported equipment enjoys complete tax exemptions in some cases.
Subjecting soap and gypsum to full tax
The project also stipulates the abolition of some special transactions currently applied to soap products, household industrial detergents, and gypsum, leading to them being subject to a 14% value-added tax.
The government confirmed that this amendment came in response to the demands of companies operating in these sectors, because it allows them to benefit from the tax deduction system on production inputs, which may limit the accumulation of tax burdens within the production process.
Facilitations in exchange for expanding the tax base
The proposed amendments reflect the government’s orientation towards providing a package of incentives to industry, the health sector, and small projects, by reducing some tax burdens, accelerating tax refund procedures, and granting benefits to production equipment, in exchange for expanding the scope of tax subjectivity for some activities and goods, in order to achieve a balance between supporting investment and enhancing the resources of the state’s public treasury.
