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Customs & Taxation Committee
New procedures in customs clearing On June 19, AmCham’s Customs & Taxation Committee hosted Galal Aboul Fetouh, head of the Customs Authority, who discussed the new ideas, trends and methods being adopted by the authority to improve its efficiency in a presentation entitled “New procedures in customs clearing.” Q&A session with the Tax Authority The Customs & Taxation Committee hosted a question and answer session
on February 22 with guest speaker Hosny Gad, head of the Tax Authority,
to clarify the vague, indistinct issues in Egypt's new tax legislation.
Below are the questions raised. A: The Tax Authority is working on changing such attitudes through changing the inspector's way of thinking so as to get along with the New Tax Law methodology and by observing their attitudes and performance. The ball now is in the tax payer's court and the auditors and lawyers come after them. More awareness should occur through the unions by defining and explaining the law and what it provided in regards of the tax payer's self assessment. Q2: Sidi Kerir Company for generating electricity, a company established under the BOOT system, will return to the Government's property after 20 years. Is it possible to depreciate the station as one unit at the rate of 5% same as applied to ships and airplanes? A: In this case Article (25) of the law concerning depreciation would be applied. However, a study could be made for such situation by the Tax Research Department in the Tax Authority for providing an answer in this regards, as there might be some difference between this case and ships and aeroplanes. Q3: For a Partnership Company, its activity is Grocery, How can it prepare form "28"? Why haven't a simple form of the tax declaration been issued? A: The Tax Authority will help the tax payers in preparing form "28".Concerning the simple tax declaration form, due to shortage of time the tax declaration for small entities was not set. We will finish it within a few months. Moreover, there was a concern that the simple declaration would used by large legal entities because this declaration will be simple and clear according to article (18) of the law. Q4: What is the situation of the Oil & Gas service companies contracting with the Egyptian General Petroleum Corporation for Oil exploration in Egypt according to law no. 91? How can it submit its tax declaration while its work duration may not complete a whole tax year? A: Before the issuance of the Income Tax Law no. 91 for the year 2005 these companies were taxed based on its turnover + net profit, but after the New Tax Law the company has to maintain regular records and books and it is mandatory to submit the tax declaration to the Joint Stock Tax Authority. Actually it was agreed with these companies specially a number not exceeding 43 companies do hold regular records and books starting 1/1/2006. Instructions will be issued by the Minister of Finance concerning this matter. Furthermore, a special tax declaration has been prepared for such companies to comply with the nature of the signed contracts between these companies and the Egyptian General Petroleum Corporation, taking into consideration the special nature of these concession agreements between the two parties. This tax declaration is available on the Tax Authority's internet site. A number financial institutes and banks had requested to have a special tax declaration form same as done for the Oil and Gas companies and this was approved. Q5: How will the depreciation be applied to the Joint Stock Companies according to the new tax law? How is a percentage deducted in the new tax declaration submitted in 2005? A: Depreciation rates mentioned in the new tax law are higher than what is applied in different countries even the developed ones. These rates are obligatory according to the depreciation articles in the income tax law no. 91 of 2005 and the executive regulations. Q6: What is the tax treatment concerning commissions paid to reporters, and would article (56) of the law apply to such payments? A: This article stated that 20% should be withhold at source of what is paid abroad, in addition, it specified the type of services that are subject to this withholding tax and considered it among the expenses. Moreover, this issue could be researched by the Tax Research Department of the Tax Authority. Q7: Concerning tips, it is not possible to prove it with supporting documents, while it is necessary for any entity whatever its activity was. We view that what is provided in the law and the executive regulations regarding expenses without supporting documents including tips is very few? A: There are no tips with the rate of 6% in any country in the world or taxes without documents, but as per the nature of some activities it has been set that expenses without supporting documents will be 7% of the General and Administration expenses that is supported with documents. This is a very reasonable percentage including tips. Q8: For companies still under the tax holidays; how would the depreciation stated in the Income Tax Law no 91 of 2005 be applied? A: These companies are tax exempted since it is still under the tax holiday; accordingly it will apply the depreciation rates in the same way it applies tax on its profits. Q9: Are loans paid by foreign branches subject to tax? Are they subject to article no. "7" of the law? A: As long as these branches have no equity then article (7) should not apply. If these companies have deposits in the banks then there will be an off setting between the interest of deposits and interests of loans. Q10: What is the tax treatment of interests due on the treasury bills and the Central Bank bonds? A: Their returns are exempted from tax according to article "17" of the law. There is a special part concerning earning revenues, this will be agreed upon with the banks. We will issue explanatory instructions according to the result of this agreement. Q11: What is the tax treatment to the real estate wealth and is it consider as a tax duplication when both real estate tax and tax on real estate wealth are applied? A: There is no tax duplication, because law no 4 of the year 1996 has subjected the renting revenue to tax, such as furnished rents by multiplying the rent amount to 12 months. Then the L.E 5,000 exemption will be deducted according to the Income Tax Law no. "91" the rest will then be subject to tax. Regarding the real estate wealth tax 30% to 40% is deducted representing expenses and the remaining part of the revenue will be subject to tax. Q12: Is it possible for the auditor to submit a separate declaration apart from the tax declaration enclosing his comments as long as he will approve the tax declaration? A: The self assessment mechanism provided by the law depends on that the tax declaration is consisted as a base and a document for tax payments. Accordingly there should not be any comments on the tax declaration. This will increase the doubts in the tax payers and will draw us back to the situation before the issuance of the new tax law and the complete tax inspection for all the declarations. As we expect that the auditor will sign the tax declaration without any qualifications as such qualifications will raise the doubts on the contents of the tax declaration. We request from the auditor reviewing these comments, as in this way he will help us in applying the law. Q13: Sale of traveling tickets includes commissions, are these commissions allowed to be considered among expenses? A: It is considered among expenses if it is supported by documents, on the condition that these commissions are not used to reduce the profit amount. The law states the allowable non supported expenses percentage. In addition, it is possible to send this part concerning selling traveling tickets for research according to the nature of activity to the Tax Research Department in the Tax Authority. Q14: Will the electronic accounts be approved by the tax authority during the tax inspection instead of manual books and accounts? Or must these accounts be printed to be approved? A: A decision was issued by the Minister of Finance to the Tax Authority by approving the electronic accounts of companies and large institutions. In addition this decision specifies ways of controls on these accounts and electronic documents. An electronic system has been set for such companies and executive instructions will be issued concerning this issue. Q15: What is the situation of applying non double tax treaties concerning services and royalties due to the new tax law? A: Non double tax treaties signed between Egypt and other countries will be applied and will not be cancelled unless both parties agree. These treaties set the tax rates and the rest of the elements, loans interests, dividends, royalties. As long as there is a treaty the local law is not applicable to both treaty parties. The provisions of the tax treaty, rates, and the tax treatment for services, royalties and etc. will be applied. Q16: Why is the amnesty limited to lawsuits in front of courts and cases in front of high challenge committees were not included? A: Disputes in front of High Challenge Committee are not cases, cases are those only raised in front of courts. Accordingly, settlements were allowed for lawsuits in front of courts under the conditions set by the law and the circular publications issued by the tax authority and through the mechanism prepared for settling disputes. High challenge committees (258 committees) distributed among 227 tax office managed to settle 350,000 tax dispute out of 450, 000 dispute, before applying the new tax law (i.e. 31/12/2005). The remaining 100,000 dispute are mostly are in urban areas, most of which are deemed assessment cases, and we are proceeding to finalizes them in the tax offices to start the new income tax law without old tax disputes. Q17: Until now nothing has been mentioned concerning re-classifying internal committees in the light of following the Ministry of Finance? A: Internal committees existing now are still practicing its work. However there will be reorganization in the light of the new law to settle the disputes inside the tax offices. It will continue until any other decisions are issued. Q18: Would the Tax Authority grant tax payers any tax incentives to finalize with them, especially the current, disputes so as to make a new start? A: There is nothing, now, called tax incentives for taxpayers until dispute is settled Moreover, incentives paid to the tax inspectors is not tied to the disputes settled any more in the light of the new tax law. Q19: How is the penalty for not submitting the tax declaration is collected by the authority? A: This penalty will not be collected without a court judgment where a lawsuit is raised against the tax payer. Thus the penalty according to the law no 91 of 2005 will be applied. Based on the judgment the penalty will be collected in addition to the tax and payable interests. Q20: what will happen if the tax declaration is submitted while taxes are not paid? A: The main aim from the law
is the immediate tax payment and tax declaration submission on the
condition the tax is paid with it. Otherwise, the tax payer will
be liable to pay the interests on the payable tax which will be
calculated starting from the following day of submitting the tax
declaration to the date of actual payment. Moreover penalties according
to the law will be applied. Executive regulations of the customs law On November 22, head of the Customs Authority Galal Abou Al-Fotouh
answered questions from members of AmCham's Customs & Taxation Committee.
Abou Al-Fotouh highlighted the positive steps he had taken to improve
the authority's efficiency, particularly in the Large Importers
Department. The Large Taxpayer Center:
New era of tax administration in Egypt The Customs & Taxation Committee held a meeting on October 2 with
guest speaker Seif Coutry, adviser to the minister of finance and
general supervisor of the Large Taxpayer Center. Coutry explained
the philosophy underlying the Large Taxpayer Center and touched
upon the main reasons behind its establishment. |
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