More to come

11-12-2012 12:18 PM

Mervat Ayoub

Even though President Mursi swiftly backtracked on a decree to raise taxes and duties, prices are already up, and the political blundering has come into question

President Mohamed Mursi who now holds the legislative authority ever since he had seized it last August, announced sweeping increases in sales taxes and stamp duties on a wide range of consumer goods and services, and amended Egypt’s income and property tax laws. 
Some six hours after he announced the increases last Sunday, the President said he will freeze them till a ‘societal dialogue’ is conducted about them, in view of what he said he sensed as the ‘people’s rejection of the increases’.
Austerity programme
The increases announced by Mursi modfy the income tax brackets; the highest bracket was changed so that annual incomes above EGP1 million (instead of EGP10 million) are taxed at a 25 per cent rate. The president also issued a law levying a 10 per cent tax on Initial Public Offerings (IPOs), company mergers and acquisitions.
Among other products, sales taxes were increased on steel, cement, soft drinks, beer and cigarettes, as well as on a variety of services, including mobile-phone services, air-conditioned transportation, and cleaning and security services.
Stamp duties on bank facilities and loans have been doubled. Duties on advertising have been increased.
The new legislation also stiffens penalties for tax evasion.
President Mursi has already reduced subsidies on butane gas and electricity as part of a government austerity programme.
The President said the measures represent the implementation of an economic programme that Egypt has proposed to the International Monetary Fund (IMF) in order to be eligible for a $4.8 billion loan. They are aimed at reducing public deficit through increasing State revenue.
Perhaps even more than the controversy over the increases per se, Egyptians felt bewildered at the contradictory decisions taken in the span of no more than a few hours. “I went to sleep while the tax increases were in force, and woke up to find them not there!” Fady Samir, a young man with a data entry job, said.
On TV talk shows, many expressed fear that the decision to freeze the increases was no more than a cosmetic move that would not go into force, since the official wording says that the increases go into effect once the decree is published in the official paper, which it had already been prior to the public announcement. Economic expert Hany al-Husseini told Watani that another article in the decree said the increases would go into effect as of 1 July. 
The increases will serve to distort the balance of inflation in Egypt, and will inevitably lead to a devaluation in the Egyptian Pound, Mr Husseini says. In all cases, all Egyptians, but especially the poor, will feel the pinch.
Former investment minister Ibrahim Fawzy described the increases as the result of “ decisions that were not given due consideration”. He told Watani that the outcome of these increases will be very hard on the needy classes in Egypt, who had expected a betterment in their life conditions as a result of the January 2011 Revolution. “President Mursi appears to have taken advantage of the current turmoil over the draft constitution to pass the increases,” Mr Fawzy says. “But the result is that the underprivileged in Egypt now feel that those in authority are out of touch, and do not care a bit about the plight of the poor.”
Unfriendly to investment
Prices on the street have already gone up. “The price increases will not signal the end of the road,” Mr Fawzy says. “More will be coming that way.”
But much worse than the spiralling cost of living, according to Mr Fawzy,  is the climate of political blunder and contradictory decisions. “Such a climate is detrimental to investment,” he says, “and is sure to drive away investment, international and local alike.”
Does this mean that investment stands no chance? Watani took the question to economic expert Mukhtar al-Sharif who lost no time to point out that investment, stability, and security go hand in hand. “Egypt is currently in the throes of poloitical conflict that appears unlikely to be resolved soon. Both President Mursi’s supporters and opponents are strong and have been so far unyielding. This does not bode well for investment, meaning that investment cannot be counted upon to pull Egypt’s economy out of the doldrums,” Dr Sharif says.
Our best hope now, according to Dr Sharif, is the IMF loan. The IMF has declared it is closely watching the events in Egypt, and stands at equal distance from from parties to the conflict. And even though the regime is attempting to persuade the international community that attempts are being made towards communal dialogue in Egypt, it is evident that no such serious dialogue is in fact taking place. 
Watani International
11 December 2012
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