Revelation of the details of the draft value-added tax (VAT) law caused an uproar at a parliamentary session triggering finance ministry denials of its application on car fuels. The application of VAT on different types of vehicle fuels, including, gasoline, diesel and fuel oil drew fire from parliamentarians and the public at large due to its widespread impact on inflation and by consequence the living standards of the urban middle class.

On its part, the finance ministry reacted by denying the novelty of the tax arguing that VAT is merely replacing the current sales tax on goods and services which applied on vehicle fuels and were previously clothed in the final prices at the pump.

Although the ministry might have momentarily dodged the criticism on applying VAT unfairly on vehicle fuels, there is a long list of items on which VAT will deviate from the regular 10% flat rate applicable on most items.

Passenger cars of above 1600-2000 cc will be subjected to a VAT rate of 15%. The same rate will go for locally manufactured vehicles of more than 2000 cc with the rate rising to 30% for imported cars.

A wide range of electrical goods including televisions, refrigerators, deep freezers and air-conditioners will be subjected to 8% VAT rate. The same rate goes for beauty products, perfumes, skin and hair care products. 

Whereas in the past most services were exempted from the current sales tax, VAT will introduce for the first time a tax on professional and consultancy services at the 10% rate, on educational programs with an international nature at 5% rate and on air-conditioned interurban transport at 5% rate.

Egypt’s finance ministry hopes to raise EGP30bn ($3.38bn) annually upon making the switch from the current sales tax regime levied at the producer level to VAT that applies at every level of production and distribution all the way to the final retail level. The ministry estimates that VAT will give a one-time boost to inflation of between 0.5%-2.5% when it comes in force in FY2016/2017.