Egypt’s House of Representatives approved on Sunday the rate of the Value-added tax (VAT) to be set at 13 per cent.
The VAT rate raised controversy between the House members with a number of MPs calling for the rate to be as low as 10 per cent.
The Finance Minister Amr al-Garhy however argued that rate should not be reduced as the country suffers a high budget deficit and reducing the tax will hinder the improvement of the economy.
The budget deficit soared to EGP 311 billion (around $25 billion) during the period between July 2015 and May 2016, constituting 11.2 per cent of the Gross Domestic Product (GDP), according to a statement by the finance ministry in July.
The government originally proposed the tax rate to be 14 per cent but agreed to comprise the rate by one per cent to meet the demands of MPs calling for lower rates.
The House approved in principle of the draft VAT law before it amid a split among its members.
Head of pro-government Support Egypt coalition which includes more than 300 MPs, Saad al-Gamal approved the bill.
Similarly, head of the parliamentary commission of the Free Egyptians Party Alaa Abed approved of the draft law while head of the parliamentary commission of the Islamist al-Nour Party and members of 25-30 bloc rejected the bill.
The VAT is expected to replace the current sales tax and broaden the tax base by subjecting all services to the tax while maintaining the principle of exempting basic goods and services that affect the poor, according to a cabinet statement in May.
It is part of the government’s reform programme, which includes cuts to expensive energy subsidies and the introduction of other new tax measures, in an attempt to cut spending and meet conditions for a $12 billion three-year loan programme from the International Monetary Fund.
The loan is still subject to the final approval of the IMF executive committee.