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Mon 29 Aug 2016 06:36 PM

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Egypt approves long-awaited VAT law, set at 13%

Parliament had been debating the law for weeks with several lawmakers opposing the initial proposal

Egypt approves long-awaited VAT law, set at 13%

Egypt's parliament approved on Monday a long-awaited law introducing a Value Added Tax of 13 percent which will rise to 14 percent in the next fiscal year.

Parliament had been debating the law for weeks with several lawmakers opposing the government's initial proposal of 14 percent and wanting to lower it to 12 for fear it would stoke inflation.

The 13 percent rate was agreed after Finance Minister Amr El-Garhy proposed it as a compromise in a Sunday parliamentary session.

The long-delayed VAT law is part of a government fiscal reform programme aimed at reducing a ballooning deficit by finding new sources of revenue and cutting energy subsidies.

The law will replace the current sales tax which economists have long said creates market distortions. It is expected to broadening the tax base in a country where the government struggles to efficiently collect income tax because of a large informal economy and widespread avoidance.

However, the tax exempts basic goods and services to protect the poor from rising prices.

Egypt's economy has been struggling since a mass uprising in 2011 ushered in political instability that drove away tourists and foreign investors, both major earners of foreign currency.

The turmoil has seen foreign reserves more than halve from some $36 billion before the uprising to some $15.5 billion in July.

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