Tax reform in Egypt could make its companies more efficient

The latest FEMISE report (FEM41-08) highlights the obstacles to productivity faced by companies in the Middle East and North Africa. Even before corruption or lack of visibility in the business sector, the taxation burden is the main impediment to corporate productivity. A better understanding of this reality by political circles could encourage companies in becoming more competitive.


Les entreprises égyptiennes subissent une pression fiscale qui affecte leur productivité (photo : F.Dubessy)

The tax burden is the main impediment to corporate productivity (photo : F.Dubessy)

Did you know that, in Egypt, companies have to pay 29 different types of taxes and that form-filling alone takes up around 392 hours of work time? Furthermore, the tax levy represents 42.6% of profits. Therefore, it should not come as a surprise that the country is at the bottom of the tax burden table, 148th out of 189! The FEMISE report recommends that “in order to boost corporate productivity, the Egyptian government must overhaul its tax policy”.

The report, entitled “Corporate Performance in Transition: The Role of Business Constraints and Institutions in the South Mediterranean Region” (available here) coordinated by Inmaculada Martínez-Zarzoso, professor of economics at the Universitat Jaume I (Spain), was published in December, 2016.

Twenty-two constraints were identified as being responsible for reducing productivity globally. Undoubtedly, internal factors such as workers’ skills and abilities need to be taken into account when analysing a company’s overall level of competitiveness.

While the tax burden tops the list of impediments, other external factors such as corruption, the lack of visibility in the area of legislation, property prices, access to and the cost of financing, or simply the cost of water and electricity can be real problems for companies.

A new reality after the 2011 revolution

The study looks into the negative effects on corporate efficiency before and after the 2011 revolution. It appears that new obstacles have emerged that have made the business climate less attractive to investors, including regulatory and political uncertainty, corruption and crime. As the report underlines, “The aim of the revolution was to generate economic and social opportunities that would open the way to economic growth and jobs. However, the country has become unstable from a political point of view. This transition period has had a direct impact on efficiency in the private sector.”

Prior to the events of the Arab Spring, interventionist policies were the norm in Egypt, as they were in most Middle-Eastern and North African states. In the report, FEMISE economists also focus on other countries in the region: Lebanon, Jordan, Morocco and Tunisia.

Here again, indicators of regulatory and political uncertainty, corruption and criminality appear to have worsened. The report concludes, “These results have important political implications. Measures aimed specifically at businesses should enable a reduction in the number of obstacles and, consequently, encourage Egyptian manufacturing companies to become more competitive.”

For more on this subject, please download the report available here.

Article produced in partnership with Econostrum.

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