With 37% of Egypt’s workforce in the informal sector, the government realized reform was the way to broaden its tax base and increase revenues. Tax rates were high, the process of making payments was cumbersome, and tax evasion was the norm. Change was necessary.
In July 2004 a new cabinet took office with a mandate to reform. The new government decided that making Egyptian tax law closer to international practice would increase Egypt’s competitiveness and its attractiveness as a destination for foreign investment. They were right. Egypt was able to add almost a million taxpayers to its roster by simplifying tax law so that every business faces the same tax burden—with no exemptions, tax holidays, or special treatments for large or foreign businesses. It was a bold move that paid off.
- Over 2.5 million taxpayers submitted their tax returns, a significant increase from 1.7 million in 2005, in part because of the amnesty for tax evasion.
- Corporate tax revenues increased from £E22 billion in fiscal year 2004 to £E39 billion in fiscal year 2005, despite the fall in corporate tax rates (from a variable rate between 32% and 40% to a flat rate of 20%).
- Overall income tax revenue increased from 7% of GDP to 9%.