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Tax reform in Egypt could make its businesses more efficient




The latest FEMISE report (FEM41-08) points the finger at the obstacles to productivity faced by companies in the Middle East and North Africa. Way before corruption or lack of visibility in the business sector, the tax burden is the main impediment to corporate productivity. If this was better understood in political circles, business might be encouraged to become more competitive.



Way before corruption or lack of visibility in the business sector, the tax burden is the main impediment to corporate productivity (photo : F.Dubessy)
Way before corruption or lack of visibility in the business sector, 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 taxes and that the form-filling alone takes up around 392 hours of work time? Furthermore, the tax levy represents 42.6% of profits. It's not surprising that the country is at the bottom of the tax burden table, 148th out of 189! "In order to boost corporate productivity, the Egyptian government must overhaul its tax policy," the FEMISE report recommends.

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

Twenty-two constraints were identified as reducing productivity globally. Obviously, internal factors such as workers' skills and abilities need to be taken into account when analysing a company's overall competitiveness.

While the tax burden tops the list, 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 purely and simply the cost of water and electricity can be real problems for companies.
 

A new reality after the 2011 revolution

The study looks at the negative effects on corporate efficiency before and after the 2011 revolution. 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 the political point of view. This transition period has 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, the FEMISE economists also analyse other countries in the region: Lebanon, Jordan, Morocco and Tunisia.

Here again, regulatory and political uncertainty, corruption and criminality 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.


In partnership with Femise

Version française


 

Nathalie Bureau du Colombier, MARSEILLE


Wednesday, January 4th 2017



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