By Omar Sherif, Omneya Anas and Ahmad Abdelnaby
The Egyptian Parliament issued new amendments to the Egyptian tax law in an effort to improve the tax brackets for the benefit of the largest part of society, in addition to introducing new penalties to the tax filing breaches.
On 7 May 2020, the Egyptian Parliament issued Law No. 26 for the Year 2020 (the “Tax Amendments”) which amends certain provisions of the income tax law issued by virtue of Law No. 91 for the Year 2005 (the “Tax Law”).
We will delve into the key highlights of the Tax Amendments as follows:
Introducing new tax brackets and exemptions
The Tax Amendments introduce more comprehensive tax brackets based on seven levels of income as opposed to the previous tax brackets which were based on five levels of income. The new annual income tax brackets run from a first bracket of up to EGP 15,000, which is subject to a 0% tax rate to a seventh bracket of annual income exceeding EGP 400,000 which is taxable at a 25% tax rate.
While the above is a summary of the tax brackets introduced by the Tax Amendments, finer details have been introduced to determine the taxpayer brackets. For example, among many similar regulations, the above rates are applicable only to taxpayer’s whose annual net income does not exceed EGP 600,000. However, there are different regulations for taxpayers whose incomes exceed EGP 600,000.
In addition, amendments were also made to the tax exemption limits, where the general tax exemption limit (i.e. the first bracket) was increased to EGP 15,000 up from the previous EGP 8,000 limit, while the personal exemption limit for salaries was increased to EGP 9,000 up from EGP 7,000.
Dates of Enforceability of the Tax Amendments
The abovementioned new rates of tax are applicable as of the following dates:
For salary taxpayers, the new tax rates will be applicable starting from 1 July 2020. However, for commercial, industrial, professional, non-commercial and real estate taxpayers, the new rates will be applicable starting from the tax period following the issuance of the Tax Amendments.
New penalties on the violators of tax filing obligations
The Tax Amendments introduce new penalties on taxpayers if the amount of tax due as per the tax filing of the taxpayer (the “Filing Amount”) is discovered to be less than the final amount of tax due as determined by the Egyptian Tax Authority (the “Final Amount”), in which case the taxpayer will be liable to progressive penalties based on the difference between the Filing Amount and the Final Amount.
For example, if the Filing Amount is less than the Final Amount by less than 50%, the taxpayer will be liable to pay 20% of the difference between the two amounts as a penalty in addition to paying due taxes on the Final Amount.
Mohamed Ma’ait, the Minister of Finance, stated that “in light of the new amendments the income tax on individuals will be progressive, fair, and achieve tax savings for the lower, middle and upper middle classes. Also, it addresses the distortions of the current system based on tax deduction”.
The Minister also added that “according to these amendments, a new social segment has been created for low income citizens, whose annual net income ranges from EGP 15,000 to 30,000, other than the limit for personal exemption”.