The tourism sector has obtained a verbal approval from the Ministry of Finance to postpone subjecting it to the value-added tax (VAT) for one year until the season ends. This is meant to avoid retroactively applying the tax on companies.
Prominent leaders in the sector told Daily News Egypt that companies cannot load the tax on the second parties of their contracts, as amending the contracts is out of question.
Karim Mohsen, vice president of the Egyptian Federation of Tourism, said that tourism companies were not subjected to the sales tax as they are considered to be providing export services, adding that they will not be able to bear a new 13% tax.
He noted that the sector has agreed with the Ministry of Finance to postpone imposing the tax on companies working in the sector until the end of November 2017. After the grace period expires, he said, companies will begin to pay the tax according to new regulations that will be designed to match the sector.
He explained that clients will have to bear this tax, as hotels are already paying sales tax.
He pointed out that the agreement between the sector and the Ministry of Finance has not been officially posed yet, but is in effect. “The tourism sector has not been demanded to pay VAT until now,” he said. “The ministry has also asked investors to set a time in which the VAT will be applicable to the sector.”
Mohsen added that the application of VAT will not be retroactive, but will begin when the grace period ends.
The legal accountant to the Egyptian Travel Agents Association (ETTA), Fathy Saied, said that the tourism sector called on amendments to be made to external contracts to avoid burdening them with taxes.
He pointed out that members of the sector met with the Ministry of Finance to resolve its fiscal problems. “A committee was formed by the Ministry of Finance, the Egyptian Tax Authority, the Ministry of Tourism, and investors in the sector to design the new regulations for VAT on tourism companies,” he explained.
Moreover, he pointed out that the VAT is not applicable to all tourism companies but will be applied to companies that operate tours from abroad and internal tourism operators. Religious tourism companies that provide Hajj and Umrah programmes and outgoing tourism companies will be exempt—as they are considered companies that provide export services.
In addition, he said that a percentage of the VAT paid by hotels are deducted to avoid double taxation.
Saied noted that the sector was never required to pay sales tax, hence will not be able to afford paying VAT, especially in light of struggling tourism.
Ahmed Balbaa, chairperson of the tourism committee in the Egyptian Businesspeople’s Association, said that the VAT will represent a new burden on the tourism sector. “The government should support the sector in light of the declining inflow following the travel warning posed by some countries after the fall of a Russian airliner in Sinai back in 2015,” he stressed.
He added that tourism is one of the most important sectors that support the national economy and a source of hard cash.
Balbaa pointed out that the application of the VAT will increase prices by up to 100%, as all goods will be subject to price hikes, in addition to operation costs, and facilities bills. “This might as well put an end to the tourism sector,” he said. “Reviving it then will require huge funds that are non-existent now.”
Mostafa Khalil, a tourism expert, said that contracts of 12-18 months were already signed without calculating VAT, which will be a problem if the sector is forced to pay.
He added that the sector’s representatives explained the situation to officials from the Ministry of Finance.
Khalil noted that hotels used to be subject to a 3% tax, while tour operators and tourism companies never paid tax before.
He urged the government to treat the sector as it treats airline tickets, which are exempted from taxes by law.”Both are services,” he said.
Deputy ministry of finance for VAT, Abdel Moneim Matar, said that the sector cannot be exempted from paying taxes. “The VAT was posed by a parliamentary decision, which ties the ministry’s hand in granting exemptions,” he added.
He explained that hotels and tourist facilities will be subject to a 13% tax instead of 10%. Moreover, he said that companies that offer inbound services will bear the same tax rate of 13%, while those that offer export services will be subject to a 0% tax.
Matar said that the law will not be enforced on the contracts that were signed already, but will be applicable on new contacts that will be signed in accordance to the new tax.
He stressed that the government supports the tourism sector through a number of themes, highlighting the government’s decision not to take legal action against defaulting tourism investors and scheduling arrears owed by the sector.