Despite the many challenges facing the Egyptian government, it expects a growth rate of 5.2% in the budget draft for fiscal year (FY) 2016/2017, while seeking to achieve a growth rate of 6.2% in FY 2019/2020.
The government expects to increase public revenues to EGP 631.056bn as a result of the expansion of the tax base. In the new budget for FY 2016/2017, the government showed that taxes will be an important source for adjusting the new budget and estimated tax revenues at EGP 433bn compared to expectations of EGP 362bn for the current FY 2015/2016.
The government has imposed new taxes on citizens besides the old ones, such as the value-added tax (VAT) and real estate tax. Revenues from applying VAT and the real estate tax are anticipated to register EGP 631m.
The new budget targets EGP 150.465bn in tax revenues on income, profits, and capital gains. Of this, EGP 36.443bn account for revenues from employment income tax and EGP 15.677m revenues from income tax other than employment. Capital gains taxes amount to EGP 2.526bn and property tax to EGP 2.649bn.
Taxes on goods and services to amount to EGP 201.178bn
Taxes on goods and services are the government’s “hero”. It estimated the revenues from goods and services tax at EGP 201.178bn, which represents about 46.5% of total tax revenues.
The new budget targets taxes on domestic and imported cigarettes and tobacco, beer, alcohol, nightclubs, and gambling at EGP 44.2bn, of which EGP 42.301bn accounts for taxes on local cigarettes and tobacco, with only EGP 217m for imported cigarettes and tobacco.
Tax on local beer is estimated at EGP 621m, with none on imported beer. Local alcohol tax revenues amount to EGP 215m; however, tax on imported alcohol reaches EGP 2m.
Customs tax revenues on cigarettes and tobacco amount to EGP 653m. The total target customs revenues on imports is estimated at EGP 29.1bn.
Taxes on special services total EGP 2.2bn, of which EGP 146m is nightclubs tax and EGP 38m is gambling royalties . The new budget stated that tax revenues on local pharmaceuticals reach EGP 703m.
Total customs revenue estimated at EGP 29.548bn in the new budget FY 2016/2017 compared to EGP 27.4bn in the current budget FY 2015/2016.
The government set taxes on international trade at EGP 29.548bn in the new budget for FY 2016/2017 out of EGP 29.094bn tax on imports.
Revenues from grants stabilised at EGP 2.213bn for the new budget. In the current FY 2015/2016, this revenue decline significantly down to EGP 2.2bn compared to EGP 25.7bn in FY 2014/2015. Grants represent 0.4% of public revenues.
EGP 305bn gap between revenues and expenditure
The second part of the new budget is public expenditure, which amounts to EGP 936.1bn. However public revenues amount EGP 631.056bn resulting in a gap of EGP 305bn.
Approximately 39% (EGP 368.3bn) of the expenditures is allocated for public services including legislative bodies, parliamentary, and executive councils, and local financial and supervisory departments, compared to EGP 321bn in the current budget.
The new budget dedicated EGP 47.1bn to national security compared to EGP 43.2bn in FY 2015/2016.
Increase in health and education expenditure
Health expenditure for the new budget is estimated at EGP 48.9bn compared to EGP 45bn in the current budget, constituting 5% of Egypt’s GDP. Expenditure on education will amount to EGP 104bn compared to EGP 99.3bn in the current budget and represents 11% of the GDP.
EGP 50.7bn is dedicated to housing and social facilities in the new budget, double the amount allocated in the current budget, EGP 25.3bn.
Benefits on local and foreign loans paid by the government in new budget are estimated at EGP 292.52m, compared to EGP 244.44m in the current fiscal year.
2.5% decrease in funds allocated to subsidies in new budget
Subsidies, social benefits, and grants have fallen to EGP 210.324bn from EGP 231.211bn in the last budget.
Petroleum resources subsidies decreased to EGP 35.42bn, compared to EGP 61.703bn in the current budget. Electricity subsidies declined to EGP 28bn compared to EGP 31bn in the current budget.
Overall subsidies were reduced by 2.5% in the new budget compared to the current budget.
Contrary to this, the military production subsidies increased dramatically in the new budget, rising to EGP 1.44bn compared to EGP 820m in the current budget.
Further, subsidies for industrial zones increased to EGP 1.4bn instead of EGP 400m, and subsidies on supply commodities increased to EGP 41bn, compared to EGP 37bn in the current FY 2015/2016.
Social protection, which includes pensions and social security, decreased to EGP 189bn compared to EGP 211.7bn in the current FY.
The minister of finance admitted that debt has reached 98% of GDP, which represents a major threat to the Egyptian economy, according to deputy director of the parliamentary Industry Committee Mohammed Saad Badrawi.
Saad Badrawi added that the Finance Ministry announced that it aims to achieve a deficit to 9.8% by the end of FY 2016/2017, which is the same targeted deficit during the current FY 2015/2016. Indications refers to more than 11% by the end of current FY in light of the lack of income, according to Badrawi.
Target growth and deficit reduction face challenges
The government is targeting a growth of 5.2% in the new budget and aims to reduce the deficit to 9.8% by the end of FY 2016/2017. However, these hopeful numbers face some challenges. Most pertinently, expenditure on wages, pensions, and benefits constitutes 60% of total expenditure. This is in addition to the increase in the payments deficit balance, which recorded $39bn during FY 2014/2015, and in turn led to a decline in foreign reserves.
Furthermore, a decline in tourist influx has strongly contributed to increasing the balance of the payments deficit. Poorly managed services in Egypt need more money, such as health, education, housing for low-income earners, development of informal housing areas, potable water, sanitation, electricity, public transport, and roads. Social protection programmes for the poor, subsidised food, cash support, school lunches, and support programmes for children and women are desperately needed.