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Amendments to the VAT Executive Regulations offer New Incentives for End Consumers, Retailers and Service Providers

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As part of the growing efforts to improve the Egyptian taxation system and the efficiency of the tax collection process, amendments to the Value Added Tax (“VAT”) Law executive regulations No. 77 of 2017 (the “Executive Regulations”) have been enacted. The amendments aim to enhance the use of electronic tax invoices by retailers and service providers through the inclusion of end consumers in an incentive system (the “System”) outlined hereunder.

The Ministry of Finance Decree No. 426 of 2022 (the “Decree”) was published in the Official Gazette on 5 September 2022, and entered into force as of 6 September 2022. The Decree amends Article 75 of the Executive Regulations of the VAT Law No. 67 of 2016 (the “VAT Law”).

The Decree’s key provisions can be summarized as follows:

Incentives System in Favor of End Consumers

The Decree grants the Minister of Finance, upon the Cabinet’s approval, the ability to establish an incentives system in favor of end consumers. Said incentives are in the form of discounts, purchase vouchers, or pecuniary or in-kind prizes to be granted to end consumers participating in the System.

The incentives are afforded to end consumers when a valid tax invoice or an electronic tax receipt is submitted or in the case a consumer informs the Egyptian Tax Authority (“ETA”) that a seller has not issued a valid tax invoice or tax receipt.

Incentives System in Favor of Retailers and Service Providers

The Decree grants certain incentives to retailers as well as service providers that are obliged to issue electronic tax invoices and introduces the possibility for new retailers and services providers to subscribe to the System and benefit from the incentives.

The selection of those who will benefit from the incentives will be by virtue of an electronic system and associated procedures set up for this purpose by the ETA. This applies whether the person benefiting from the incentives is an end consumer, a retailer or a service provider.

Once the Cabinet issues its approval, the Minister of Finance will issue the regulations determining the sectors to which the System will be applicable.

Impact on VAT Collection

The Decree and the established System will encourage the use of electronic tax invoices as a result of the incentives that will be offered. Said mechanism is expected to lead to an increase in the number of tax invoices issued to the ETA.

Market Reaction

The Decree was welcomed by the market as it was perceived as a positive step to strengthen the VAT collection system in Egypt as well as encouraging the shift to an electronic tax invoices system. We await the practical implementation of the Decree, particularly more insight on the sectors required to adhere to the System and the procedures established to benefit from the incentives.