Translation: Muhammad Khalid

The general budget of the Arab Republic of Egypt aims every year to increase tax revenues as an important resource for the country, not only through introducing or amending tax laws, but also by expanding the tax base, by linking it to economic activity.

According to a statement by the Ministry of Finance, the state aims to collect taxes of EGP 1.168 tn in the 2022/2023 budget, an annual increase of 18.82% over its level in the 2021/2022 fiscal year of EGP 983.01 bn.

Given that the real estate development sector is one of the most important industries driving economic activity in Egypt, increasing tax revenues may be a concern for some.

In this feature, Invest-Gate discusses with a number of experts in the real estate industry the most prominent obstacles facing the sector with regard to taxes. Experts are also inquired about any endeavors or proposals to overcome such obstacles or adopt tax incentives in coordination with government agencies.

Issues Facing Developers

Yasser Helmy, a board member at the Real Estate Development Chamber (REDC) and head of the chamber’s tax committee, says that real estate development companies are subject to about 7 different taxes and contribute between 30 to 40% of the taxes collected by the state, so they are an important resource for the general budget. These companies also, Helmy adds, are contributing to operations in 90 industries that serve the real estate sector.

Helmy reveals that the developers’ tax issues include many aspects, which the chamber has tried to discuss recently with representatives of the Egyptian Tax Authority (ETA) and through communication with the Ministry of Finance. He notes that these demands include creating a cooperation protocol through a committee formed between the Ministry of Finance represented by the ETA and the REDC, to interpret some provisions of the Value Added Tax Law, its amendments and its executive regulations. Developers also, Helmy continues, demand explanation of the law’s definitions of a developer, an investor, and a contractor, to avoid incurring 5% contracting services tax when procuring building materials.

Additionally, Helmy points out the disparity in tax collection among companies practicing the same activity, indicating that the REDC also demanded that there be a clear interpretation of the commercial shops clause in the Value-Added Tax Law, as tax missions don’t have a full grasp of the mentioned clause. Helmy confirms that Tarek Shoukry, Chairperson of the REDC, submitted in his capacity as the Deputy of the Housing Committee of the House of Representatives, in an official letter to the Head of ETA, a proposal to define the commercial component item to avoid disparity in the collection of taxes imposed on developers.

Helmy, the Head of the Tax Committee at the REDC, unveils that the chamber calls for establishing regulatory mechanisms and procedures by the ETA’s tax avoidance department and the chamber to address any issues facing real estate developers, in order to protect investments in the sector. REDC also requests, Helmy says, that an ad hoc committee should be formed of representatives of the ETA and the REDC to settle investors and developers’ disputes.

Burdens on Customers and Developers

Osama Saad Al-Din, Executive Director of the REDC, says that the real estate development sector is overwhelmed by higher production costs and land prices, therefore, taxes are additional burdens on developers that push up unit prices and affect customers.

Saad Al-Din notes that developers have become unable to set the final prices of units due to the continued change prices of material and the diminish in the support of the Central Bank of Egypt’s mortgage initiatives. He adds that developers face several obstacles, including taxes, adding that the REDC recently formed a committee to communicate with government agencies and manage crises. The committee looks into issues facing developers and communicates with government agencies concerned with these problems, including issues relevant to taxes and their collection, Saad Al-Din comments.

In turn, Sherif Hamouda, Chairman of GV Group, indicates that real estate taxes constitute a burden on customers, as they are imposed only on finished units, adding that tax increases should be replaced by tax incentives for different sectors to boost the real estate sector.

In the same context, Fathallah Fawzy, Vice Chairman of the EBA and Chairman of the Real Estate Development and Contracting Committee, states that real estate taxes increase burdens on customers owning units, but they are needed to increase state’s resources. Fawzy highlights that other taxes are imposed on developers’ profits. He elaborates that people’s need for housing is like eating and drinking, so increasing taxes will not stop the customer’s need for it, that investors and developers opt for semi-finished units to avoid real estate taxes.

Tax Incentives and Facilities

The Executive Director of the REDC stresses the need for the state to provide tax and financial incentives developers and customers, as part of its endeavor to support real estate export, to maintain the momentum in the sector and to attract foreign investors.

For his part, Hamouda mentions that real estate companies in general suffer from rising costs and sale prices, so tax incentives will support real estate investment and the industry as a whole, reducing the burdens on companies.

Helmy, the Head of the Tax Committee at the REDC, points out that the chamber has been studying proposals for some time to provide real estate tax incentives, whether for the customer to reduce the burden on him and ensure the momentum of purchase, or for the developer to reduce his costs, and support him to continue working to meet the needs of the growing market.

Helmy suggests that a tax exemption be imposed in some places, such as remote areas or regions, for a specific period only, in order to complete many existing projects, and boost investments. He also recommends employing clear regulatory and accounting mechanisms in tax collection for more transparency.

In conclusion, real estate experts agree that since the real estate developer is facing several problems, such as the high prices of construction materials, and the clients’ tendency to opt for other investments such as bank certificates, there is no alternative to approving tax incentives and facilities in support of the industry, and to achieve the ambitious urban plan adopted by Egypt.