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Egypt’s taxman sees treasure in electronic invoicing

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Egypt is obliging its large taxpayers to sign up for a programme to submit their invoices electronically, a system designed to bring small shops and other businesses that had long slipped under the radar into the formal economy.

The government is counting on the system to help at least double its tax revenue over time.

Nearly 500 of Egypt’s biggest taxpayers have already been signed up in the first two phases, in November 2020 and February 2021. Wednesday was the deadline for the remaining in a final phase for the large business-to-business taxpayers.

“My expectation is that with the completion of the easiest project, tax revenue will be doubled, from one trillion to two trillion” Egyptian pounds ($128 billion), Finance Minister Mohamed Maait told Reuters.

Yet to start is a potentially more complicated project of registering business-to-consumer companies, which will begin within six months, he said.

“We have already awarded the project to an international company who will do it with us,” Maait said on the sidelines of a conference. “The party for celebrating the kick-off of the project will be this month.”

“This will help significantly in the inclusion of the informal sector, because this will ensure that all the informal sector will be seen and included in the formal sector.”

The cabinet last month said state agencies and companies with majority state ownership had to register by Oct. 1 as well.

The new system will force a bigger part of the economy to pay taxes, although it is probably difficult to judge the impact until it is fully up and running, said Ahmed Hafez, an analyst with Renaissance Capital.

“I don’t think the government had enough data to make a proper estimate of how much additional revenue it will generate,” he said.

The International Monetary Fund has long urged Egypt to put its taxation base on a more solid footing.

Legal measures would be taken against any remaining large companies that had not registered by Wednesday, Egypt’s Tax Authority warned.

“Failure to join the electronic invoicing system will result in the suspension of these companies’ dealings with all state agencies, bodies and companies as of Oct. 1,” the authority’s chairman Rida Abdel Kader said in a statement published in newspapers on Tuesday.

“Export subsidies to these companies will also be stopped.”

‘GRADUAL PROCESS’

Major manufacturers of consumer goods were among the first to be forced to comply. Each must submit customer tax data, its own electronic signature and a code for each product to the tax authority.

Edita Food Industries, among 347 companies that registered in February, was given a deadline of May 15 to begin issuing receipts electronically.

“It was very challenging at the beginning,” said Menna Shams El Din, head of investor relations at Edita, one of the first companies to successfully implement the system.

A maker of packaged cakes, bakeries and other fast food items, Edita sells to wholesalers as well as directly to grocery stores and kiosks.

Enrolling in the new system was more complicated for wholesalers, which had to provide their commercial registry with the government. Smaller retailers such as street kiosks will be included once the wholesalers they buy from are enrolled.

“Some wholesalers agreed to enter the system and others didn’t,” Shams El Din said. Most eventually realised they had to join to get supplies. “It was a gradual process.”

Now, she said, 93% of Edita’s 56,000-strong retail base and around 70% of its 6,000-strong wholesaler base were adhering to the new system, which she deemed a success for increasing tax inclusion.

Asked about the invoicing system, a grocery store owner in downtown Cairo said he would never agree to join. “Most of the other owners around have also said they would never agree.”

But industry sources familiar with the system say such retailers are being included without necessarily being told that details of their purchases will now be passed on to the taxman.

($1 = 15.6800 Egyptian pounds)

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