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The taxes that Egyptian bloggers and YouTubers have been told to pay lately are neither new nor as hefty as they may sound.
Nevertheless, some of these taxes have long been evaded by numerous professionals, which casts doubt on the willingness of new taxpayers to comply.
How come I pay taxes for something I shoot with my own camera that I bought with my own money and edit its final version on my laptop?
For many, the ‘new-old’ taxes have come with a great deal of perplexity, and also shed light on longstanding shortcomings in Egypt’s tax regime.
Everyone is targeted
The Egyptian Tax Authority (ETA) initiative pertains to pretty much everyone monetising their online activities in Egypt. The newly-established ETA unit, which has been monitoring e-commerce activities, reported that there has been a myriad of tax evaders.
People from the e-commerce community, which includes content creators – namely bloggers and YouTubers – did not welcome the decision.
“How come I pay taxes for something I shoot with my own camera that I bought with my own money and edit its final version on my laptop?” Belal Ezzat, a video blogger who has over 585,000 followers on Facebook, says in a post on the social media site.
“I shoot in my room and upload [videos] using the internet that I have paid for … on an American website … What did you [Egyptian government] do throughout this process that I would give you money for?” says Ezzat, who was not accessible for further comment.
In September, Reda Abdel-Kader, the head of ETA, said around 80% of service and commercial activities in Egypt are not taxed.
Lack of communication
His predecessor, Abdel Moneim Matar, says that by default, “all goods and services are subject to tax” in Egypt.
However, since e-commerce activities are relatively new in the north African country, yet have been extensively widespread and lucrative, the authority felt the need to clarify that they are subject to taxes, he says.
Matar, nonetheless, rues a lack of communication before the authority released a statement, which initially gave a false impression that a new tax law had been enacted.
According to him, the tax authority should’ve sat down with a group of bloggers or representatives of the e-commerce community to inform them that their activities ought to be taxed. A lack of essential communication is the reason “why the statement created a fuss,” Matar tells The Africa Report.
Indirect and direct taxes
ETA has demanded that citizens plying their trade in e-commerce register for the value-added tax (VAT) within 12 months from the beginning of their operations, in case their respective yearly revenue exceeds LE500,000 ($32,000).
The VAT, which Egypt has set at 14% since 2016 pursuant to a $12bn funding programme with the IMF, is meant to be incurred by end-users. An online trader, for instance, would add a 14% price increase on sold items, and later pay this amount as an indirect tax.
Taxpayers must feel that ‘paying tax is beneficial to them somehow, [for instance by experiencing] better education, better roads, better health care, transportation.’
ETA has also called on the e-commerce community to open a tax file in order to be directly taxed, which can either be through the SMEs development law that came into effect earlier this year, or the income tax law of 2005.
The SMEs development law, which many ETA officials in local media have been encouraging taxpayers to invoke, would impose a fixed annual tax on revenues for five years. Under this law, the first tax returns should be submitted in the first quarter of 2022 for the current calendar year.
The law, which offers amnesty, sets taxes in categories starting from below LE250,000 in annual revenue, a limit that entails a tax of LE1,000. Those whose revenues are between LE500,000 and LE1m will be taxed LE5,000 per annum.
The legislation covers higher categories but businesses that were registered after the law came into effect last April can only invoke it should their revenues be below LE1m each.
On the other hand, opting for income tax means internet taxpayers will be expected to abide by seven ascending rates pursuant to their net profit.
In the first category, those who earn up to LE15,000 annually are exempted. The highest rate imposes a 25% tax on those who make profits of more than LE 400,000 per annum.
The income tax rates are progressive. For example, one who earns LE30,000, on which 2.5 % tax is imposed, will pay LE375 in taxes, as half of this profit amount will be tax-free as per the first category, and only LE15,000 will be taxed 2.5%. The same applies to all rates.
The highest-paid Egyptian bloggers will be taxed no more than 20% on their overall income under this law, says Osama Diab, an economic rights researcher and lecturer in development studies.
Meanwhile, “the lower-paid majority will pay much less,” he tells The Africa Report, basing his speculation on the average earnings of blogging in Egypt.
The e-commerce community may feel it is being targeted given that they were singled out by the tax authority, which mentioned no other professions in its statement, says Diab.
If authorities are to corner them for tax evasion, they would only target the highest-paid, says Diab, who is also a member of the Economic Policy Working Group at the International Network for Economic, Social and Cultural Rights (ESCR-Net), and the Debt Justice Working Group at Progressive International.
“I don’t think the state will go after people who make LE20,000 and LE30,000 per annum … but it might do so for those who make millions, though there are very few in Egypt,” he says.
Legal action against defaulters
ETA officials have said four bloggers have already been referred to prosecution over tax evasion accusations, without revealing their identities or further details.
Last month, Mohamed Keshk, senior audit official at ETA, told local media that the authority would be keeping tabs on the e-commerce community through coordination with state bodies, including the information ministry, ruling out the possibility of taking action amid a paucity of information.
There were communities in the early 20th century that were very effective in collecting taxes even before computers.”
He also says Egypt is hoping that through the Organisation for Economic Cooperation and Development (OECD), it will be able to enforce source-based taxation on e-commerce, meaning platforms such as Facebook and YouTube would directly pay due taxes.
So far this month, 136 nations, including Egypt, have agreed to an OECD-sponsored deal that aims to ensure large companies will pay a minimum tax rate of 15% starting 2023.
Low tax-to-GDP ratio
Egypt is targeting an 18.3% year-on-year increase in tax revenue in the current 2021/2022 fiscal year, which ends on 30 June.
Should the target be achieved, Egypt will collect LE983bn worth of taxes, which makes up 72% of the expected state revenue in 2021/2022.
Egypt’s tax-to-GDP ratio “has improved in the past three years, but still remains low owing to a large size of an informal economy and an inefficient bureaucracy,” Mohamed Abu Basha, senior economist at Egypt’s largest investment bank EFG Hermes, tells The Africa Report.
The ratio currently stands at nearly 13 percentages, which Abu Basha says is “low relative to peers.”
Egypt “should initially be at least targeting 15%-17% of GDP with an eye on reaching 18%-20% in the long-term,” which would in turn gradually decrease the nation’s heavy reliance on debt, he says.
Despite commending efforts to develop the tax regime over the past five years, ex-ETA head Matar believes there is a long way to go in certain areas, such as infrastructure, staff training and working conditions.
“[ETA] employees’ pay should be reconsidered and commensurate with their productivity to ensure a better performance,” he says.
[…] seeing fintech as a remedy would be “a reductionist reading of the taxation problem in Egypt.”
The state has been seeking to boost the efficiency of the tax authority as a measure to eradicate the grey economy, under which fall businesses that are neither registered nor taxed.
Among needed requirements for this endeavor to bloom, EFG Hermes’ Abu Basha says, are more efforts to “digitalise and modernise the collection of taxes,” a process that has already started in recent years.
Fintech not remedy
However, researcher Diab believes fintech cannot solely fix the Egyptian tax regime. “The problem is deeper than that,” he says.
“No doubt that it would make it easier and more traceable but that’s not the core of the problem,” he says, adding that seeing fintech as a remedy would be “a reductionist reading of the taxation problem in Egypt.”
“There were communities in the early 20th century that were very effective in collecting taxes even before computers,” he says.
Taxpayers must feel that “paying tax is beneficial to them somehow, [for instance by experiencing] better education, better roads, better health care, transportation,” Diab says.
Missing sense of justice
In most modern societies, paying taxes is obligatory but done across the board since taxpayers feel “a general sense of justice, meaning the whole community is committed to paying taxes,” Diab says.
“Unfortunately, that’s not the case in Egypt, especially when it comes to free, or non-commercial professions,” Diab says.
Diab says YouTubers and bloggers, as well as other e-commerce activities, are categorised as free, or non-commercial professions, which require a small or no capital to be performed, such as medicine and legal practice.
The revenue generated from this category is by far negligible, estimated below 0.5% of the overall tax revenue, with such taxpayers hardly discountenancing tax evasion, Diab underlines.
“We all go to doctors for check-ups and surgeries … they do not give receipts, even those who make millions,” and the same goes for lawyers, he says, adding that YouTubers and bloggers for the most part will likely follow suit and avoid paying taxes.
*Bloggers were contacted for this story for comment, but all refused to comment
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