A decision by the Finance Ministry to levy a 14 percent value added tax on online deliveries, introduced on June 4 is a “necessary to achieve tax justice” in Egypt.
In a statement to the press, Reda Abdel Kader, head of the Egyptian Tax Authority, stated that the new tax is an important measure to “support for fair competition in the tax market.”
Online delivery services like Talabat and El Menus have seen a huge increase in customers since the start of the Coronavirus pandemic in 2020 while many other businesses were struggling. While a law in 2017 subjected many chains and outlets in malls, airports and tourist sights to VAT, online delivery services were exempted. This law aims to close this loophole for delivery services.
However, there are questions over who will ultimately foot the bill of the new tax, with the possibility of it being passed on, partially or fully, to the consumer rather than being absorbed by the companies themselves.
The comments from the head of ETA offer clarity to the reasons behind the rather sudden decision by finance minister, Mohamed Maait, to levy the tax last week.
According to Maait, not all delivery businesses will be subject to the changes in taxation; the changes will only apply to restaurants and shops with total annual revenues of over EGP 500,000 ($32,000). According to Business Today, individual shops–ones not part of a chain–and merchants will be exempt from the changes.
One challenge facing the government is the many businesses that are still not registered with authorities, despite their activity online. In response, Abdel Kader “[stressed] that unregistered companies should go to registration,” as soon as possible.
Egypt’s online delivery service has grown exponentially in recent years, and by one estimate is valued at $2.5 billion.
The finance ministry’s draft budget for 2021/22 aims to raise taxes by up to 18% in order to achieve an ambitious 22 percent growth in government revenues this year.
The question of taxing online based businesses has recently become a more widely discussed topic with G7 leaders agreeing to a global 15 percent rate of corporation tax for online businesses like Facebook and Amazon.