Viewpoint: Cherif Hammouda
One of the most important changes to take place recently is the digitisation of tax, a process which began in Egypt only in mid 2018. The tax rate in Egypt is lower than a number of other countries around the world, which is important in boosting the country’s competitiveness. However, in the past the difficulty associated with filing taxes has counteracted these competitive tax rates. Digitalisation aims to simplify taxes and reduce the bureaucracy and time associated with them, while also contributing to more effective tax collection by the government.
In Spain, for example, the digitisation of taxes began in 2010 and the fourth and final stage in this process has just recently been completed in 2018. However, despite starting this process several years later, Egypt’s implementation of digitalisation has taken place much more quickly. Indeed, in the first six months of the process the first three steps of the process have been carried out. The first step entailed requiring that all tax returns be filed over the internet. The second step was to prohibit payment of taxes in cash or by cheque, instead requiring payments to be made via online bank portals. The third step – which is the most recent regulatory stage undertaken in Egypt – is to require that all invoices be issued through an account on the tax website.
It has taken a longer period of time to develop the accompanying regulations, as they are currently under consideration as a draft law. The implementation of this law would give the tax authority digital access to everyone’s financial statements, thereby increasing transparency across the board, reducing the difficulties associated with businesses filing a tax return, as well as the challenges associated with auditing these transactions. The final step will be to close bricksand-mortar tax offices for the filing and payment of taxes so that each process occurs exclusively online.
This final step is very important, in that it will help facilitate the ease of conducting business and dealing with taxes, particularly for foreign investors. However, at the same time, it signals dramatic changes for firms providing tax and audit advisory services. Given the pace of digitalisation in Europe, there are projections which suggest that tax advisers will no longer be needed there by 2023. It is unlikely that we would reach this same point as quickly in Egypt, but the trajectory is nevertheless clear.
We are beginning to see some of the impact that automation and digitalisation will likely have on a number of sectors. These changes require these sectors to develop in a way that enables collaboration and adds value alongside digitalisation rather than works against this process. During this transition period, it will be necessary to assist companies – the vast majority of whom currently do their accounting and taxes using private tax programmes – to interface effectively with the government’s tax reform programme to avoid the work of doing everything twice. Therefore, ICT is becoming an increasingly important segment of tax consultancy work.
One challenge that is made clearer by the digitisation of the Egyptian tax system is that of the unregulated economy. The size of this informal sector is significant in Egypt and there are many initiatives especially within the banking and financial sectors that have been undertaken to bring businesses operating in the grey economy or in an unregulated way into the regulated economy. While it can be difficult for a fully regulated business to adapt to a fully digitised tax system, for many of the businesses that have been operating in an unregulated way, making that transition will be extremely difficult. Digitising the formal economy could, therefore, have the potential downside of polarising the formal and informal economies. It will be necessary to bear in mind this challenge as the digital tax system continues to be developed, so that appropriate solutions can be created for companies in the process of formalising their operations.
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