In an interview with Al-Masry Al-Youm, Finance Minister Hani Demian said the Egyptian economy is on a safe track which will allow it to repay debts and debt services.
He also said that the financial and economic policies of the government are open to all options, including the International Monetary Fund loan.
He said the government needs LE135 billion to increase spending on health, education and scientific research to reach 10 percent of the GDP over three years, of which LE25 billion were already raised this fiscal year.
“Subsidies cause poverty, and poverty causes more poverty,” he said. “Hard work is our first line of defense.”
He said the new Suez Canal project prevents international trade from turning in other directions, such as toward the Panama Canal and the Cape of Good Hope, expecting that one-third of the economy would be concentrated in this region 10 years from now.
Q: Where does the Egyptian economy stand if compared to the economies of other countries that started the growth journey with Egypt, such as Malaysia and South Korea?
A: We must have our own model, not imitate models like Malaysia or South Korea simply because we do not have the same conditions.
Although I am the Finance Minister, I consider myself the Economy Minister, which means I must mobilize economic potential even through tax policy tools, if need be.
The government needs LE135 billion to increase spending on health, education and scientific research to reach 10 percent of the GDP over three years, of which LE25 billion were already raised this fiscal year.
I am also required to reduce the budget deficit that reached 15 percent of GDP last year, not including Gulf aid.
Foreign and local investors were reluctant to invest in Egypt in the past few years because the economy was not growing at an acceptable rate and the deficit was increasing.
Hence the new Suez Canal project, which would raise the ratings of the canal, for the canal has a rating similar to that of economies and financial institutions. Without the project, international trade would turn to other channels, such as the Panama Canal and the Cape of Good Hope, in 10 to 15 years from now.
And there is a social dimension to the project, as it employs 38,000 workers in the drilling and dredging process, let alone the many more jobs that would be created once the project is completed.
Q: What about the tax on special economic zones?
A: In 10 years, one-third of Egypt's economy would be concentrated in this area. This prompted me to raise the tax on economic zones to 22.5 percent for new projects, while keeping already existing projects at 10 percent.
I suggested to the political leadership to reduce the income tax from 30 percent to 22.5 percent, although it was I who raised it from 25 percent to 30 percent a year ago.
The tax system aims to strengthen the capital base and the means of production. Sales taxes on machinery and capital equipment was reduced from 10 percent to 5 percent, provided they are paid at once and not over three years.
When the the tax on income profit distribution was levied, it was to strengthen the capital base because 75 to 80 percent of the profits were distributed as opposed to reinvested to strengthen the capital base.
Q: What happened to the International Monetary Fund loan?
A: We are in constant contact. The financial and economic policies of the government are open to all options, including the International Monetary Fund loan.
Q: What is your assessment of the economic conference?
A: It placed us in a credibility test. The president's call for holding it every year proves that the government is accepting the challenge.
Q: Where did the money Egypt has recently received from Arab states go?
A: To offsetting the trade deficit, buying strategic commodities like wheat, gas and medicines, and paying external debt obligations. We received a time deposit of US$1 billion from Kuwait and $140 million from Saudi Arabia in the form of petroleum derivatives.
Q: Will the government answer the new parliament as to how it spent that money?
A: Absolutely.
Q: Did the financial aid that was agreed upon with Saudi Arabia, Kuwait, the United Arab Emirates and the Sultanate of Oman during the conference arrive?
A: They amount to $12.5 billion, but they did not arrive yet.
Q: The government is accused of lacking a vision. What do you think?
A: The government places public interest above personal interest. It works on improving services for citizens and on creating jobs. Hard work is our first line of defense, not subsidies. Subsidies cause poverty, and poverty causes more poverty. We must achieve an equal distribution of wealth.
Q: What is your plan to counter tax and custom duty evasion?
A: We closed down smuggling outlets in Port Said, and we faced the smuggling of Chinese products. We foiled an attempt to smuggle 44 million Tramadol tablets in the Dekheila port and another attempt to smuggle shoes, which made shoe traders protest outside the Finance Ministry. We are also putting down more severe sanctions for tax evasion.
Q: How can we overcome the budget deficit?
A: With economic reform policies. We aim to reduce the deficit to 10.5 percent of the GDP in the next fiscal year, and to 8 percent over the coming five years. Also, by diversifying energy sources, using solar and wind energy. If we use LED bulbs, we would save $500 million.
Q: What is the philosophy of the Value Added Tax?
A: It is partially applied to the industrial sector, but not in full. It aims to broaden the tax base.
Q: What is the message that the reform policies want to deliver?
A: Trust and credibility. We need to retain investor confidence. In 2008, we were among the top emerging economies that were able to overcome the global financial crisis.
Q: What happened to the 5 percent tax on income higher than a million pounds a year?
A: It was meant to last for three years. It was dropped when the tax base was expanded.
Q: What about the real estate tax law?
A: It is still being discussed, for it was amended several times. Also, we need to convince the community of it.
Q: Why was the accurate examination of accounts abolished and the arbitrary tax system reinstalled?
A: Actually, it is the arbitrary tax system that should be abolished because everybody keeps books, even the smallest kiosk. I encourage citizens to request invoices for anything they buy. We are considering tax deductions for people who submit invoices.
Q: When will the fuel smart cards be applied?
A: The first phase will start in April without limiting any certain amounts of gasoline and diesel.
Edited translation from Al-Masry Al-Youm
