Ashraf Abdulal, an Egyptian Tax Authority (ETA) officer highlights the loopholes and imbalances of the tax system, its prejudice in favor of the rich, and his own ideas about how to rectify these imbalances.

Abdulal works in the ETA Self-Employed Department yet his main concern is not about collecting money rather implementing the spirit of the tax system as a tool for social justice.

Ashraf Abdulal, an Egyptian Tax Authority (ETA) officer highlights the loopholes and imbalances of the tax system, its prejudice in favor of the rich, and his own ideas about how to rectify these imbalances.

Abdulal works in the ETA Self-Employed Department yet his main concern is not about collecting money rather implementing the spirit of the tax system as a tool for social justice.

Along with some colleagues, Abdulal has contributed to concepts, research and proposals submitted to ETA conferences and training centers to help the ETA play an effective role in driving the country’s economy. He also contributed some suggestions to the ‘Together for Egypt’ study on governance of self-employed businesses, presented in April 2014 at a taxation conference held in the ETA Tax Training Center. In addition, he actively participated along with members of his independent union in a sit-in staged by tax collectors on August 10, 2015, before the Syndicate of Journalists, to protest the Civil Service Law.

Mr. Abdulal, what is a tax?

It is an economic tool aimed at equally distributing income among various social classes. It should be imposed disproportionally so as to affect high-income classes more. It should not be imposed without examining the financial resources of taxpayers and their ability to afford more taxes, taking into consideration the level of economic growth. Taxes are a national duty to which all members of society should contribute in a just and equitable manner.

What is the ETA’s work mechanism?

I am no specialist in this issue. However, as an ETA official I can say that the ETA, based on its prescribed mission, is presumed to act as a sophisticated tax management authority that performs its duties efficiently and effectively and provides quality services based on the principles of equity and transparency in order to create a well-informed and committed taxpaying society conducive to financial stability and economic growth.

However, I am sure that the majority of ETA employees are unaware of this mission and do not have that vision. As a result, the state loses billions of pounds because the ETA’s mission is not achieved. While ETA employers could be partially blamed for this, it is the ETA itself that is mainly to be blamed because it, like other state institutions, lacks harmony and coordination among its departments. This ultimately leads to a waste of capacities and alternative opportunities that would otherwise be realized should strategic planning be used and interaction within ETA departments and also between the ETA and taxpayers be realized.

In addition, the ETA most unfortunately – this is self-criticism that aims to introduce reform and development – uses modern approaches only superficially.

Nonetheless, despite the ETA’s limited material and technological resources and inability to create and innovate and in spite of rampant red-tape inside the Ministry of Finance (MoF), ETA employees, though unaware of the ETA’s mission, can provide solutions to the irresolvable problems and realize exemplary annual turnouts that exceed those of any other state institutions.

If the ETA adopts a modern and sophisticated work mechanism based on a comprehensive strategy and approach, Egypt will, most certainly, achieve unprecedented budget surpluses generated by the taxation process.

What is the main shortcoming in Egypt’s tax system? And what relation does it have to the minimum wage?

Unequal taxes imposed on economic enterprises and institutions and on citizens having equal incomes leads to the so-called ‘black boxes.’ This harms the principle of equality among citizens before the tax law, not to mention the tax provisions that give privileges to certain individuals or groups. We consider this to be unconstitutional and inconsistent with the principles of social justice.

For example, special regulations and laws are enacted for certain jobs to give their holders extra financial benefits in return for certain efforts or risks, or as compensation for specific harms, which is not problematic or contradictory. The problem however occurs when such persons or groups are exempted from taxes, which means that persons or entities with similar incomes are not equal in terms of taxes. This ultimately infringes the rule of the law and justice, and is also a violation by the authority that has promulgated the exemption law to reduce the jurisdictions of the Tax Law itself.

For example, over 15 years ago Al-Ahram newspaper published a small news piece about the Israeli tax authority demanding Israel’s Ministry of Defense (MoD) pay commercial taxes for a plot owned by the MoD in a commercial district in Tel Aviv. This example explains that there is a big difference in tax management in terms of time, concept and quality between Egypt and Israel, which is presumed to be Egypt’s archenemy, regardless of any peace accords.

The greatest imbalance is imposing taxes on citizens with wages less than the minimum wage. The minimum wage should be annually set through economic studies. The minimum wage in Egypt – L.E. 14,400 per annum( US $1,793) – needs to be increased given the rising rate of inflation. Besides, only those earning L.E. 6,500 (US $810) per year are exempted from taxes.

Is progressive taxation the solution?

Certainly, because a tax system is an economic system that enables the state to achieve its basic functions, protect citizens and improve their standard of living, as well as achieve social justice. Progressive taxes considerably reduce income disparity by imposing proportional taxes on high-income citizens because they benefit more of the country’s resources, but without thwarting their desire to increase production. According to the current system, however, when more taxes are imposed, it is the low-income citizens who bear the brunt, which in turn reduces taxpayers’ voluntary commitment to paying taxes. Therefore, the ETA should make more efforts to achieve the required targets.

Why there are demands to transform the ETA which operates under the MoF into an independent body?

Reality shows that it is of no use to affiliate the ETA with the MoF because this dependency further shackles the former and hinders its development. Besides, the MoF neglects its key task of maintaining the state’s sovereign revenues. Beside taxes and customs, the MoF, contrary to rumors, has numerous revenues generated from the use of any of the very complex and ramified resources of the state.

When the ETA becomes an independent body, it will strike a balance between citizens’ ability to afford more taxes and a need for further exemptions to meet their basic needs on the one hand, and the government’s increased need for more resources, on the other. This can be achieved through economic studies away from political pressures and wrong government practices that incorrectly believe that the budget deficiency is only resolved through imposing more taxes. In fact, ETA independence will boost the rule of law and straighten out tax provisions.