Ensuring transparency in enforcing the value added tax (VAT) can result in a wide tax base and an increase in services, but maintaining the current goods and services tax (GST) will also have a positive impact on the economy, the Egyptian Center for Economic Studies has said.
Applying the VAT transparently would help expand the tax base and therefore increase government revenues by LE30 billion during the 2015-2016 fiscal year, according to the center.
With the enforcement of the VAT, “an important part of the informal sector becomes formalized through easier processes of billing and refund incentives,” the center said, adding that the VAT helps evade double taxation and encourage compliance.
It noted, however, that the VAT could raise inflation by 2.6 percent, thanks to a one-time increase in the prices of non-basic goods and services.
But strengthening the current GST is also favorable, said the Egyptian center, adding that such a step can slightly increase tax revenues through incentives for compliant taxpayers and harsher penalties for evaders.
The center added that maintaining the GST while emboldening it limits inflationary expectations, but, at the same time, the tax administration is complicated, with “non-uniform tax rates on different goods and services”.