…There is actually too much to talk about here…so let’s just look at the proposal to replace sales tax with VAT. This idea is directly dictated by the IMF.
Sales tax is a one-off retail point-of-sale tax. VAT is a tax added at every point from manufacture of a product to delivery to storage to sale, this increases the price of goods for consumers. But it also opens up multiple opportunities for companies to receive refunds and exemptions along the way.
One of the biggest problems with the VAT system is that it produces an unequal tax burden across sectors, benefiting some industries more than others. For instance, companies extracting oil would be subject to lower VAT than, say, manufacturers of machinery, because oil’s value does not really change much through the production process.
If you scan the Egyptian economy that is going to mean basically, export goods will have a lower VAT, and goods for domestic sales will have a higher VAT, increasing their prices for local consumers.
Furthermore, incidence of corruption in VAT taxation systems has been proven to be greater than in regular sales tax systems, particularly in countries with lower per capita incomes. And, indeed, countries like Russia are now moving to scrap VAT for this very reason.
What VAT does achieve is higher tax revenues which allow the government to remit more money to international creditors…which Minister Hany Kadry Demian wants every Egyptian to understand is the highest possible priority.
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