Journal Issue

Taxation in the United Arab Republic (Egypt)

International Monetary Fund. Research Dept.
Published Date:
January 1966
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THE ECONOMIC SYSTEM of the United Arab Republic has been changed in the past 12 years from a predominantly free enterprise system to a largely publicly owned and regulated economy. An impressive rate of growth has been attained; since 1956/57, the gross national product (GNP) is estimated to have grown at an average annual rate of more than 5 per cent and per capita income by more than 2.5 per cent a year.

During the 12-year period, gross capital formation was a growing percentage of GNP, but domestic saving did not keep up with financial needs. In this paper, tax policy in the U.A.R. is analyzed with special reference to the possibility of releasing more resources for investment purposes.

The Economic System and the Budget

National product

Economic progress in the United Arab Republic (U.A.R.) in recent years is demonstrated by the growth in GNP at constant prices. Careful estimates1 show that the annual growth rate increased from an average of 2.4 per cent in the period 1952/53-1956/57 to 5.4 per cent in the period 1957/58-1961/62.2 Data prepared by the Ministry of Planning for 1962/63 and 1963/64 indicate a further increase in the rate of growth. The 1960 census recorded a population of 26.1 million, indicating that GNP per capita in 1961/62 was equivalent to about US$135 (LE 1=US$2.30). With an estimated population growth rate of 2.5-3.0 per cent per annum, an improvement in per capita real income through this period is indicated.

The availability and use of resources in the years 1959/60-1963/64 is shown in Table 1. According to these data, gross capital formation increased from 12.5 per cent of GNP in 1959/60 to 18.2 per cent in 1963/64. However, domestic saving fell short of these needs and remained at about 11 per cent of GNP after 1960/61; the savings gap was filled by borrowing from abroad. As a result, net foreign borrowing increased from 23 per cent of gross capital formation in 1959/60 to an estimated 41 per cent in 1963/64. This increasing need for foreign financing forced the Government to mobilize all available resources, including short-term funds.

Table 1.United Arab Republic: Gross National Product (GNP) at Current Prices, Fiscal Years 1959/60-1963/641(In millions of Egyptian pounds)
1959/601960/611961/621962/631963/64 (provisional)
GNP at market prices1,375.61,467.11,550.61,679.81,866.0
Net borrowing from abroad38.935.376.4115.2140.7
Total available resources1,414.51,502.41,627.01,795.02,006.7
Gross capital formation171.4229.2248.3299.9340.02
Public current expenditure193.2210.91,378.71,495.11,666.7
Private consumption1,049.91,062.3
Total uses1,414.51,502.41,627.01,795.02,006.7
Domestic savings132.5193.9171.9184.7199.3
Gross capital formation as per cent of GNP12.515.616.017.918.2
Gross savings as per cent of GNP9.613.
Source: Data supplied by United Arab Republic, Ministry of Planning.

Fiscal year July 1–June 30.

IMF staff estimates.

Source: Data supplied by United Arab Republic, Ministry of Planning.

Fiscal year July 1–June 30.

IMF staff estimates.

The burden of debt service has become very heavy, and continued reliance on foreign loans on conventional terms may not be possible. For this reason, a greater part of the increase in GNP in the coming years will have to be saved if investment is to continue at existing levels. Although it cannot be said that in all cases domestic saving is a substitute for foreign borrowing, it is assumed in this paper that, given the present investment pattern, the savings gap in the U.A.R. could be filled, at least partly, by increased domestic saving.

Planning administration

Enterprises are controlled through two kinds of agencies—the Public Authorities and the Public Organizations.3 The Public Authorities are single enterprises that generally carry on the traditional government business activities, such as railways and posts and telegraphs; they are free from income tax. Each Public Organization generally includes many enterprises; for example, there is a Public Organization for mining, one for engineering industries, and another for small industries. Each Public Organization is attached to a ministry, the Minister of which presides over a board of directors appointed by the President. The Minister exercises “supervision, direction and control of the agency.” Most of the enterprises are organized as joint-stock companies, and the board of the organization “exercises the duties of a general assembly of shareholders.” As a top organ, a supreme council of public agencies presided over by the President of the United Arab Republic was established in 1961.

A Public Organization usually owns 100 per cent of the shares of the enterprises included, but in some instances only 50 per cent is owned. According to the budget estimates for 1964/65, about 16 per cent of the total profits distributed to shareholders went to shareholders in enterprises in which the Public Organization’s holdings were only 50 per cent.


At the time of the large-scale nationalization in 1961, the budget was composed of a current budget, a development budget, and many annexed budgets for the public services. Thereafter, it became clear that these constituted an inadequate tool for economic policy, and it was decided to adopt a separate Enterprises Budget and a Services Budget. The first budget with the new classification was for the fiscal year 1962/63.

Enterprises Budget

The Enterprises Budget consolidates the budgets of Public Authorities and Public Organizations and also includes the investment expenditures of the fully and partially affiliated companies. Formerly, the budgets of the government enterprises of a business character which are now designated as Authorities were annexed to the General Budget. As indicated above, the Public Organizations (each of which encompasses several enterprises) are for the most part in the nature of holding companies established to administer the Government’s interest in the affiliated companies.

The inclusion in the Enterprises Budget of investments undertaken by affiliated companies is based on the assumption that these investments are made on behalf of the public sector. If the resources of the companies are not sufficient to cover the outlays projected for them in the budget, other financing must be obtained by the Treasury. Thus, the Enterprises Budget includes “Investment” as an expenditure and “Self-financing by affiliated companies,” “Government participation,” and “Treasury loans” as sources of financing. The Public Organizations invest dividends received from the affiliated enterprises; in this way, funds are reallocated in the same sector. Any surplus earned by a Public Organization is transferred to the Services Budget.

Services Budget

The Services Budget covers both the central administration and the local governments and also institutions, such as universities and the television system, engaged in providing public services. The Services Budget encompasses current as well as investment expenditures. This Budget, excluding investment expenditures, is presented in Table 2.

Table 2.United Arab Republic: Services Budget, 1962/63-1964/651(In millions of Egyptian pounds)
1962/63 (actual)1963/64 (provisional)1964/65 (estimate)
Tax revenues217.8286.0311.0
Service revenues31.439.047.0
Miscellaneous receipts16.517.927.5
Extraordinary receipts19.412.620.4
Surplus of enterprises66.969.0108.1
Total revenues352.0424.5514.0
Total current expenditures397.8469.2496.3
Balance for investments (—deficit)—45.8—44.717.7
Source: Data supplied by United Arab Republic, Ministry of the Treasury, Budget Office.

Fiscal years July 1-June 30.

Source: Data supplied by United Arab Republic, Ministry of the Treasury, Budget Office.

Fiscal years July 1-June 30.

The item “tax revenues” in Table 2 will be described later. “Service revenues” are revenues from services for which fees are charged; for example, they include the fees received for powdering with pesticides and the surplus from the sale of fertilizer.

The most important item included in “miscellaneous receipts” is the net income of the operations of the Ministry of Supply, which sells quantities of basic goods in excess of fixed rations at a profit and quantities within the rations at a loss. The loss on these operations is included in current expenditures; the net loss in 1963/64 was about LE 25 million. Steps have been taken by the Government to include all supply operations in one account so as to show more clearly their importance.

“Extraordinary receipts” are mainly the revenues from the export taxes on rice, onions, and petroleum collected through the banks and the profits from exchange control operations.

“Surplus of enterprises” is the surplus of the Public Organizations. For some of the Organizations, the surplus is transferred from the previous fiscal or calendar year; therefore, the figure is not the surplus found in the Enterprises Budget for the same fiscal year.

The current expenditures shown in Table 2 comprise expenditures on defense, education, and other service functions. An economic classification of the expenditures is not available. An estimated distribution for the average of 1962/63 and 1963/64 shows 42 per cent spent on wages and salaries, 29 per cent on goods and services, and 29 per cent on transfer expenditures.

Structure and Development of Tax Revenues

Tax revenues in the period 1957/58-1964/65 are given in Table 3. The figures exclude licenses and royalties paid by enterprises and included in the budget as a “business tax.” Table 4, which is based on Table 3, shows the composition of revenues and their trends in relation to GNP.

Table 3.United Arab Republic: Central Government Revenues from Taxes and Duties, 1957/58-1964/651(In millions of Egyptian pounds)
1957/58 (actual)1958/59 (actual)1959/60 (actual)1960/61 (actual)1961/62 (actual)1962/63 (actual)1963/64 (actual)1964/65 (estimate)
1.Income tax
Interest and dividends8.
Professional income0.
Defense tax4.
2.Taxes on property2
Other taxes34.
3.Inheritance duties2.
4.Stamp duties46.
5.Import duties
Statistical duties, etc.
Customs duties on63.764.573.874.385.0103.2118.8128.7
Other duties22.522.126.626.631.442.947.852.0
6.Export duties9.
7.Import and export entitlement duties5.
8.Excise and consumption duties18.223.123.625.628.435.249.749.3
9.Total revenue from taxes and duties158.1164.4166.9180.1189.6219.5275.9
Source: Data supplied by United Arab Republic, Ministry of the Treasury.

Data do not agree with tax total in Table 2 because of differences in sources.

Does not include Cairo, Alexandria, and Port Said.

Defense tax on land and buildings, watchman tax.

Includes stamp duties on imports.

Includes a small amount of fees of various kinds.

Source: Data supplied by United Arab Republic, Ministry of the Treasury.

Data do not agree with tax total in Table 2 because of differences in sources.

Does not include Cairo, Alexandria, and Port Said.

Defense tax on land and buildings, watchman tax.

Includes stamp duties on imports.

Includes a small amount of fees of various kinds.

Table 4.United Arab Republic: Central Government Tax Structure and Social Insurance Premiums, 1957/58-1963/64
LE million
1.Taxes on income, property, and capital transfers152.451.550.654.550.353.468.6
2.Taxes on goods and services2105.7112.9116.3125.6139.3166.1207.3
3.Total tax revenue158.1164.4166.9180.1189.6219.5275.9
4.Gross collections of social insurance premiums321.363.6439.262.779.6
5.Gross national product1,19551,25651,37661,46761,55161,68061,8666
Per cent of total tax revenue
6.Taxes on income, property, and capital transfers3331303027242528
7.Taxes on goods and services6769707073767572
Per cent of GNP
8.Taxes on income, property, and capital transfers4.
9.Taxes on goods and services8.
10.Total tax revenue13.
11.Gross collections of social insurance premiums1.54.342.
12.Taxes on income, property, and capital transfers—1.4—0.84.1—
13.Taxes on goods and services12.62.010.316.320.822.115.1
14.Total tax revenue11.11.314.411.323.230.317.5
15.Gross collections of social insurance premiums99918.29.111.97
Source: Based on data in Table 3.

Total of items 1, 2, and 3 in Table 3.

Total of items 4, 5, 6, 7, and 8 in Table 3.

Including collections from the Government as employer.

Including collection of arrears in government contributions.

From Bent Hansen and Donald Mead, The National Income of the U.A.R., 1939-1962 (Institute of National Planning, Cairo, July 21, 1963).

Data supplied by Ministry of Planning.


Increase in revenue as per cent of increase in gross national product.

Not calculated.

Source: Based on data in Table 3.

Total of items 1, 2, and 3 in Table 3.

Total of items 4, 5, 6, 7, and 8 in Table 3.

Including collections from the Government as employer.

Including collection of arrears in government contributions.

From Bent Hansen and Donald Mead, The National Income of the U.A.R., 1939-1962 (Institute of National Planning, Cairo, July 21, 1963).

Data supplied by Ministry of Planning.


Increase in revenue as per cent of increase in gross national product.

Not calculated.

Prior to 1957/58, the relative importance of taxes on income and property increased; but by the end of the decade this relationship had shifted as the declared policy placed greater reliance on indirect taxation. As a result, taxes on goods and services rose from 67 per cent of total tax revenue in 1957/58 to 75 per cent in 1963/64.4 This shift was achieved mainly through higher import duties.

During the period 1957/58-1961/62, total tax revenues did not keep pace with the growth of GNP; between 1961/62 and 1963/64, however, revenue grew at a faster rate than GNP. A calculation of the flexibility5 of total tax collections shows 17.5 per cent for the whole period 1958/59-1963/64. The year-to-year figure was lower than this in the earlier years and higher in the later years (Table 4).

Between 1957/58 and 1962/63, revenue from taxes on income, property, and capital transfers fluctuated within a narrow range; the revenue loss resulting from a decline in private income from interest and dividends was offset by the increase in revenue from taxes on wages and profits and from a higher defense tax rate beginning in 1960/61. In 1963/64, as revenue increased, income tax arrears were collected.6 Taxes on goods and services were more flexible, mainly because of rising collections from import duties. The main source of import duties is tobacco. Although tobacco imports were rather stable over the period studied, increased rates of duties brought higher revenues. For raw materials, intermediate products, machinery, etc., both imports and the rates on these imports increased.

No attempt is made here to estimate the built-in flexibility7 for future years, but it can be expected to be higher than the average for the period described. The increased rates of duties on imports indicate a higher flexibility for taxes on goods and services in the years ahead.

On the whole, the U.A.R. has been rather more successful than many other countries in raising revenue pari passu with needs. However, additional revenue is needed to finance expanding requirements. The possibilities of obtaining this revenue will be discussed later; emphasis will be placed on increased taxation in the agricultural sector—a sector for which the ratio of tax revenue to increments in value added is believed to be rather low.


Income taxes

The framework for the income tax system in the U.A.R. was established with the introduction of the schedular income tax by Law No. 14 of January 23, 1939. In 1949, this tax was supplemented by a global tax levied on total income of physical persons. Income taxes in 1963/64 contributed about 17 per cent of total tax collections.

The schedular taxes are levied on private persons’ and corporations’ income (1) derived from labor (Book III), (2) earned as profits from commerce and industry (Book II), and (3) derived from movable capital (Book I).

Taxes on wages and salaries are withheld by the employer, and taxes on interest and dividends are withheld by the paying companies. All personal income tax returns are to be filed and taxes are to be paid by March 31 of the following year. Other filing dates are allowed companies, depending on their fiscal year.

Tax on interest and dividends

The tax on income earned as dividends, interest, lottery prizes, directors’ bonus (with some limits), etc., is most often paid at the source. There are no personal exemptions. Since 1960/61 the rate has been a flat 26.55 per cent, composed of the basic rate of 17 per cent plus the defense tax of 7 per cent (before 1960/61, 3.5 per cent) and a municipal surtax of 15 per cent on the 17 per cent. The revenue received (excluding defense tax) is about 15 per cent of the total revenue from income taxes.

Tax on profits

The profits tax is the most important source of income tax revenue. On the average (excluding defense tax but including tax on dividends to Public Organizations), it contributed about 37 per cent of all income tax revenue from 1960/61 through 1963/64.

The schedular tax, at a flat rate of 26.55 per cent, applies to undistributed profits, after deduction of the workers’ share and distributions to shareholders. Corporate distributions, including the part of profits which is paid to the Public Organizations as shareholders, are subject to the tax of 26.55 per cent on income from securities, etc.

Although the schedular tax is neutral with respect to distribution policy, the general income tax, which is payable by individual stockholders on dividends received, could theoretically influence corporate retention. Dividend policy, however, is set by the Government.

Under the 1939 Law, the rate of tax levied on profits is the same as that on income from capital. For noncorporate enterprises, the deductions allowed for dependents are the same as those for income derived from wages and salaries. Depreciation allowances range from 6 per cent to 30 per cent annually, depending on the average life of the asset. Losses may be carried over to the three following years.

Tax on professional income

The revenue from the tax on professional income has averaged LE 0.4 million a year, or about 1 per cent of the total income tax revenue.

Deductions for dependents are the same as those allowed on income from wages and salaries. New entrants to a profession where a degree is required are exempt from this tax for the first five years after the date of the license. In 1964/65, a deduction of 25 per cent of gross income was allowed to cover expenses. (Before 1964/65, 20 per cent was allowed.)

Until 1960, a flat tax rate was applied to professional incomes, net of all costs, or of costs calculated as 20 per cent of gross income. Since 1961/62, the rates have been as follows:

BracketTaxable IncomeTax Rate
1stLE0–1,50011 per cent
2ndLE1,501–2,00013 per cent
3rdLE2,001–3,00015 per cent
4thLE3,001–5,00018 per cent
5thMore than LE 5,00022 per cent

The additional defense tax of 3.5 per cent, which had been imposed in 1956, was increased to 7 per cent in the fiscal year 1960/61.

Tax on income derived from labor

The schedular tax (exclusive of defense tax) on labor income and pensions accounts for 15-20 per cent of the total income tax yield.

Before 1960, wages and salaries were taxed at basic rates ranging from 2 per cent to 9 per cent. In 1960 the top marginal rates, on incomes of more than LE 1,050 a year, were increased from 9 per cent to a range of 11-22 per cent. At the same time, some minor increases in rates were made for incomes in the LE 500-1,050 brackets. The following basic rates have been in effect since 1960:

BracketTaxable Annual IncomeTax Rate
1stLE0- 1002 per cent
2ndLE101- 2503 per cent
3rdLE251- 4004 per cent
4thLE401- 5505 per cent
5thLE551- 7507 per cent
6thLE751-1,0509 per cent
7thLE1,051-1,35011 per cent
8thLE1,351-1,85013 per cent
9thLE1,851-2,85015 per cent
10thLE2,851-4,85018 per cent
11thMore than LE 4,85022 per cent

To these basic rates was added the 1956/57 defense tax at the rate of 1 per cent on taxable incomes of less than LE 500 a year and 2 per cent on higher incomes. In 1960/61 the upper figure for the third bracket was reduced from LE 500 to LE 400; and in 1962/63 the defense tax rate on incomes in excess of LE 400 a year was doubled to 4 per cent.

Before August 1962, personal exemptions were LE 100 for single persons and LE 150 for married persons with children. Beginning in 1962/63 they were raised to LE 150 for single persons and LE 250 for married couples with children. Such exemptions are not allowed if the salary or wage received is more than double the size of the exemption; however, income after tax is not reduced below that of one whose taxable income is equal to double the personal exemption. A deduction of 7½ per cent of the income is allowed to cover expenditures on insurance, retirement premiums, and other items.

The effects of these rates may be illustrated by the tax payable on income of workers in nonagricultural occupations. Unskilled workers have an average annual income estimated at LE 100, which would not be taxed. Skilled workers have an average annual income estimated at about LE 320, on which the tax payable would be LE 1.38, calculated as follows:

Egyptian pounds
Gross income320
Less 7½ per cent deduction24
Less LE 250 exemption250
Taxable income46
Tax payable
Income tax of 2 per cent on LE 460.92
Defense tax of 1 per cent on LE 460.46
Total tax1.38

The best-paid workers have an income of about LE 500, on which the tax payable would be LE 7.50, calculated as follows:

Egyptian pounds
Gross income500.0
Less 7½ per cent deduction37.5
Less LE 250 exemption250.0
Taxable income212.5
Tax payable
Income tax of 2 per cent on LE 1002.00
Income tax of 3 per cent on LE 112.53.38
Defense tax of 1 per cent on LE 212.52.12
Total tax7.50

Added to these taxes is the social insurance premium of 10 per cent of income.

General income tax

Revenue from the general income tax is about 8 per cent of the total income tax revenue. This tax was introduced in 1949 as a means of improving the progressivity of the income tax. It is paid on the sum of all incomes, including the annual rental value of agricultural land, received in a year by individuals (not by corporations or Public Organizations). Deductions are allowed for interest and insurance premiums totaling up to LE 200 and for all direct taxes, other than general income tax, paid during the year. Deductions for dependents are LE 50 for wife and each child, with a maximum allowance of LE 200. These deductions are not permitted if the income is more than LE 2,000. Taxable incomes of less than LE 1,000 are exempt from the general tax.

Since 1961/62 the rates on incomes of less than LE 2,000 have been unchanged. The rates, effective since 1961/62, on incomes exceeding LE 2,000 are as follows:

BracketTaxable Annual IncomeTax Rate
1stLE0- 1,000nil
2ndLE1,001- 1,5008 per cent
3rdLE1,501- 2,0009 per cent
4thLE2,001- 3,00010 per cent
5thLE3,001- 4,00015 per cent
6thLE4,001- 5,00025 per cent
7thLE5,001- 6,00035 per cent
8thLE6,001- 7,00045 per cent
9thLE7,001- 8,00055 per cent
10thLE8,001- 9,00065 per cent
11thLE9,001-10,00075 per cent
12thMore than LE 10,00090 per cent

In 1956/57 the defense tax was added on a scale ranging from 2 per cent to 10 per cent; this was lowered slightly in 1960/61 and repealed in 1961/62.

Taxes on property and capital transfers

Tax on income from land

All arable land is subject to tax on the basis of its “annual rental value,” assessed every ten years by a special central department. The basic rate is 14 per cent of the annual rental value; and there is a surcharge of 15 per cent on the 14 per cent tax. In addition, there is the defense tax, which was originally 3.5 per cent of the annual rental value and was raised in 1960/61 to 7 per cent. Any farmer whose tax liability for each parcel is less than LE 20 can deduct LE 4 from the amount of his tax payment. (The loss of revenue on account of this regulation is estimated at LE 5.3 million a year.) The defense tax is paid by the user of the land and is regarded as a substitute for income tax on the cultivators; the other taxes are paid by the owner. Finally, there is a highway surtax of 5 per cent of the 14 per cent, making a total rate of 23.8 per cent of the annual rental value.

Revenue from the land tax, excluding the defense tax, in 1962/63 was LE 10 million, or about 4 per cent of total tax revenue.

Taxes on buildings

Taxes on buildings, like the land taxes, are paid on the “annual rental value,” as fixed by a special central department, or on the actual income when the building is rented. A deduction of 20 per cent of the annual rental value is allowed for all expenses, including maintenance, which the landlord incurs. The tax rate was fixed at 10 per cent in 1954, and changed to a progressive rate in July 1961. In November 1961, the rate was reduced for low-rent houses built since 1958. The rate currently in effect for buildings not used for living purposes is 10 per cent, paid by the owner. For residences, the rates range as follows:

Average Monthly Rent per RoomTax Rate
LE 0- 310 per cent
LE 3- 515 per cent
LE 5- 220 per cent
LE 8-1030 per cent
Above LE 1040 per cent

The additional defense tax for houses built since 1944, imposed in 1956 at 2.5 per cent and changed in 1960/61 to 5.0 per cent, is paid by the owner; to this is added, in some areas, a municipal tax of 2 per cent of the rental value, paid by the owner. The owner also pays a watchman tax of 2 per cent of the rental value. The tenant pays a rent tax of 2 per cent of the rental value. Therefore, the total tax paid on buildings ranges from 19 per cent to 51 per cent of the annual rental value.

The revenue from the tax on rented houses in 1961/62 was LE 1.2 million, excluding the revenues from Cairo, Alexandria, and Port Said, which are not available.

Inheritance tax

The inheritance tax is levied on the total estate and on shares of inheritance. Estates under LE 5,000 and shares under LE 500 are not taxed. Additional exemptions are provided in respect of houses for family living, collective insurance, and insurance of less than LE 2,000 for the benefit of legal heirs.

Shares of LE 500 and above are taxed at an increasing rate according to their size and the relationship between the testator and the heirs. For example, an inheritance from father to son of a total estate of LE 10,000 is taxed at 8 per cent, and one of LE 60,000 at 30 per cent, whereas a legacy to someone not a member of the testator’s family is taxed at rates ranging from about 24 per cent on LE 10,000 to about 62 per cent on LE 60,000. A surtax of 5 per cent is added for the municipality. The revenue from inheritance duties is between 1 per cent and 2 per cent of the total tax revenue.

Taxes on goods and services

As previously indicated, taxes on goods and services are by far the most important source of revenue for the U.A.R. In 1963/64, they yielded about 75 per cent of total tax revenue.

Import duties

About half of the revenue from taxes and duties in the Services Budget stems from import duties. In 1930, a tariff that introduced protective features for the first time was established. This tariff was mainly in the form of specific duties per unit of weight, etc. Later, the tariff was raised and ad valorem duties were added; for example, a charge of 10 per cent of the value was established for “dock duty.”

Thirty years of amendments rendered the tariff system very complicated; finally, under a tax reform in 1962 ad valorem duties replaced specific duties on most imported goods. The reform was constructed so that in 1962/63 it would yield the same revenue as had been obtained under the old law. For certain items, such as coffee, tea, motorcars, and tobacco, rates were increased, while for others, such as chemicals and medical equipment, they were reduced. There is also a “customs statistics fee,” which was introduced (and subsequently increased) for the purpose of inducing a shift away from the use of imported goods. This fee was raised from 5 per cent to 10 per cent in March 1964. About 50 per cent of the total import revenue is derived from the duty on tobacco, imports of which have been quite stable in the last ten years.

Import duty revenues compared with the value of imports for the fiscal years 1959/60-1963/64 are shown in Table 5.

Table 5.United Arab Republic: Revenue from Import Duties, Including Statistical Duty,1as a Percentage of the Value of Imports, 1959/60-1963/64
Excluding tobacco213.716.916.717.517.9
Including tobacco34.437.936.234.835.2
Sources: Based on data in Table 2 and IMF staff estimates.

And some other minor fees.

The import value of tobacco is about 2 per cent of total imports.

Sources: Based on data in Table 2 and IMF staff estimates.

And some other minor fees.

The import value of tobacco is about 2 per cent of total imports.

Because of the lag in collections, the increase from 5 per cent to 10 per cent in the rate of the statistical duty is not reflected in the 1963/64 figures. When the increased statistical duty is fully collected, customs duties on all imports (excluding tobacco) may be expected to increase to not more than 22-23 per cent of the total value of imports. This is not a heavy burden when compared with that of many other countries.

Export duties

Total revenue from export duties is relatively small (Table 3). However, a substantial amount is derived from a tax on exports of rice, onions, and petroleum; this is collected on behalf of the Treasury by the banks, which withhold 20 per cent of the receipts. The amount of revenue from this source is not known, as it is combined with profits of the Exchange Control Department as extraordinary receipts in the Services Budget.8 The profits of the Exchange Control Department are made in the following way: some foreign assets obtained from drawings on the IMF and other sources are carried on the books of the central bank at the par value, i.e., LE 1=US$2.87156; however, foreign exchange is sold at a rate of LE 1=US$2.30. In recent years, profits have resulted from the difference between the par value and the effective selling rate; they have been treated as receipts of the Exchange Control Department and transferred to the government account.

Excise taxes

There is no general sales tax in the U.A.R., but excise taxes are levied on sugar, cement, benzine, alcohol, and some other goods. In 1962/63, the taxes on benzine, oil, and alcohol were increased, and new taxes were imposed on several goods, such as cotton, wool, and mazout (heavy fuel oil). In 1963/64, revenue was increased considerably by higher taxes on sugar.

The duties are mostly of a specific nature, with the rates the same for both imported and domestic goods. The revenue collected on imported goods is called revenue from consumption duties, while that from domestic goods is called revenue from excise duties. In 1963/64, the revenue from these excise duties was about 18 per cent of the total revenue from taxes and duties. The recent trend of revenues from excise and consumption duties is shown in Table 6.

Table 6.United Arab Republic: Revenue from Excise and Consumption Duties,1 1958/59-1963/64(In millions of Egyptian pounds)
Alcoholic beverages1.
Oil products7.
Cotton and wool1.42.1
Total of which23.123.625.628.435.249.7
Consumption duties6.25.07.510.012.017.7
Source: Data supplied by United Arab Republic, Ministry of the Treasury.

Consumption duty is the revenue collected on imported goods; the revenue from domestic goods is excise duty.

Source: Data supplied by United Arab Republic, Ministry of the Treasury.

Consumption duty is the revenue collected on imported goods; the revenue from domestic goods is excise duty.

Stamp duties

Revenue from stamp duties, which are collected by the Taxation Department, amounts to about 5 per cent of total tax revenues. Stamp duties are levied on all deeds, documents, applications, registers, and contracts; gas, electricity, and water suppliers; electricity and gas consumption, etc. The tax is collected in a variety of ways: by means of stamped paper supplied by the Taxation Department or stamped by it before use, or by affixing stamps, seals, or control plates.

Taxation by local units and councils

The local units are 24 governorates and about 100 local councils (villages or cities). The governorates administer local services in health and education, the expenditures for which are fully paid from the Services Budget as grants-in-aid. These expenditures, therefore, are included in expenditures in the Services Budget. The local councils have their own resources from taxes, duties, and fees. Usually the total of their budgets shows a small surplus—estimated at LE 3.2 million for 1964/65—which is transferred to the governorates and used for their financing. The budgets of the local councils are not included in the Services Budget in the same way as the budgets of the governorates; instead, the surplus of the local councils is subtracted from total current expenditures in the Services Budget.

The present system of local finance was introduced in 1960, to become effective in the fiscal year 1962/63. At that time, the local services that had been financed by the Central Government were transferred to the governorates, and the services that had been financed from the local authorities’ own resources were placed with the local councils. Estimated revenues under the present system are given in Table 7; no actual results or revised estimates are available for the years since the system became effective.

Table 7.United Arab Republic: Estimated Revenues of Local Councils, 1962/63-1964/65(In millions of Egyptian pounds)
Taxes on land and buildings14.014.014.9
Other taxes collected by councils11.011.514.0
Other taxes collected by Central Government3.23.76.8
Current nontax revenues9.212.914.1
Extraordinary revenues14.07.94.0
Source: Data supplied by United Arab Republic, Ministry of the Treasury.
Source: Data supplied by United Arab Republic, Ministry of the Treasury.

Some local revenues (surcharges on the profits tax, import duties, and Suez Canal dues) are collected by the central taxation authorities; others are collected by the local councils. Some revenues are redistributed by the Ministerial Committee of Local Administrative Affairs (formed by the various ministers under the chairmanship of the Minister of Local Administrative Affairs). This redistribution is made to the poorer councils; the funds are obtained from 25 per cent of the revenue of the local land taxes and 50 per cent of the revenue of the surcharge on the customs duties and on the profits tax. The law permits loans from the governorates to the local councils; however, this has not been practiced. The collecting municipality has the use of the 75 per cent of the local revenue from taxes on land that is not redistributed to the poorer municipalities, and of the revenue from the tax on buildings.

Many different taxes are collected by councils, including an entertainment tax and a motorcar tax; none of these revenues is reallocated. Included in the taxes collected by the Central Government is a 10 per cent surcharge on the Suez Canal dues, the revenue of which is redistributed to the three cities along the Canal. The current nontax revenues are derived from utilities managed by the councils and miscellaneous other sources.

Local revenues (not including the extraordinary revenues) rose from LE 37.4 million in 1962/63 to LE 49.8 million in 1964/65. Most important were the increases of LE 3.6 million in taxes collected by the Central Government and of LE 2.0 million in revenue from utilities.

Social insurance premiums

The Pensions and Insurance Authority had in 1963/64 about 740,000 participants employed directly by the Government in the Armed Forces, Administration, etc. The Social Insurance Authority had in the same fiscal year about 900,000 participants, not employed directly by the Government but by the affiliated enterprises and others. For this latter group, the social insurance premiums before 1964 were 24 per cent of the salary; 7 per cent was paid by the employee and 17 per cent by the employer. In March 1964, these premiums were increased to 33 per cent, distributed as shown in Table 8.

Table 8.United Arab Republic: Social Insurance Premiums as Percentage of Salary, 1964
By Whom PaidHealth InsuranceOld AgeAccidentsUnemployment InsuranceTotal

To this is added 1 per cent paid by the Treasury.

To this is added 1 per cent paid by the Treasury.

The right to an old-age pension is earned after at least 20 years of payments by a full-time employee who is 50 or more years old. The pension after 20 years of full employment is 40 per cent of the average salary for the last 3 years of service; after 38 years of full employment, the pension reaches its maximum of 75 per cent of average salary for the last 3 years of service.

Since April 1963, the premiums for a special pension scheme for government employees have been 10 per cent of salary, paid by the employee, and 12.5 per cent, paid by the Government; previously the Government had paid 10 per cent only.

The changes in social insurance operations since 1959/60 (for the Social Insurance Authority, 1959 is taken as fiscal year 1959/60, 1960 as 1960/61, and 1961 as 1961/62) are shown in Table 9.

Table 9.United Arab Republic: Social Insurance Operations, 1959/60-1963/64
Million Egyptian pounds
Less Benefits2.
Other expenditures0.
Thousand persons
Source: Data supplied by United Arab Republic, Ministry of the Treasury.

Includes collection of arrears in government contributions.

Source: Data supplied by United Arab Republic, Ministry of the Treasury.

Includes collection of arrears in government contributions.

How much of the receipts is contributed by employees is not known. Estimates based on comparative rates indicate that employees contributed about LE 25 million in 1962/63 and LE 30 million in 1963/64. No details on the use of the surplus are available. The overwhelming part, however, is transferred to the Treasury.

Strengthening the Tax System

An analysis of the possibilities of strengthening the revenue structure of the U.A.R. through taxation of enterprises, agriculture, and wages and salaries is presented below.

The relative importance of the sectors in the U.A.R. economy is shown in Table 10. The contribution of “Agriculture” to GNP, which had been about 31.5 per cent in 1959/60, declined to 27.8 per cent in 1962/63; “Industry and mining” increased in importance, from 19.9 per cent to 21.5 per cent of GNP; “Electricity,” “Construction,” and “Transport, communications, storage, and Suez Canal” also showed modest increases.

Table 10.United Arab Republic: Percentage Contribution to Gross National Product of Major Economic Sectors (at Constant Prices), 1959/60 and 1962/63
Industry and mining19.921.5
Transport, communications, storage, and Suez Canal7.28.3
Trading and financial services10.010.1
Other services21.220.5
Source: Data supplied by United Arab Republic, Ministry of Planning.
Source: Data supplied by United Arab Republic, Ministry of Planning.

Taxation of enterprises

About 12 per cent of the population is employed in mining and manufacturing, and another 12 per cent in trade, transportation, and communications. The most important industrial items produced are cotton textiles, foods, tobacco, crude petroleum, cement, fertilizer, and tires.

Although the U.A.R. has declared socialism as the goal of its development, the profit concept persists, and the enterprises are still subject to a tax on their profits, similar to that introduced under the schedular tax law in 1939. However, since the Public Organizations control practically all enterprises, the share of the Government is not limited to the profits tax.9 This situation is illustrated below. For the sake of simplicity the tax on profits and that on dividends are here treated together.

Net profit is profit after depreciation. Depreciation allowances are the same as those accepted by the Taxation Department. Following nationalization in 1961 and later years, new book values were established for compensation purposes. However, the old, written-down values of the assets continue to be used as a basis for depreciation allowances. In addition to normal depreciation, a special fund is allowed to cover the difference between replacement costs and depreciation allowances.

The distribution of net profit is shown in the scheme below:

Per Cent
INet profit100
IILegal reserves10
IIIGovernment bonds5
IVWorkers’ share, total (25 per cent of I-II-III)21
VProfits tax (26.55 per cent of I-IV)21
VIShareholders’ share after tax (I-II-III-IV-V)43
VIITreasury share (III+V+⅗ of IV)39
VIIIWorkers’ share payable in cash (⅖ of IV)8
IXOwn reserves (II)10
XTotal distribution (VI+VII+VIII+IX)100

The size of the legal reserves (II) is fixed in the corporation charter; it can be between 5 per cent and 10 per cent of net profit. However, it is not common to find reserves of less than the maximum 10 per cent. Additional reserves are sometimes allowed, but how the decision regarding these extra reserves is made is not known; their amount is not shown in the Enterprises Budget.10

Five per cent of the profits must be invested in government bonds (III). The money is deposited in the Central Bank for the Treasury, but no bonds have so far been issued. The amount deposited in recent years has grown from LE 2.8 million in 1962/63 to about LE 4.5 million in 1964/65.

The workers’ share (IV) is 25 per cent of the profit before profits tax (after legal reserves and purchase of government bonds). Three fifths of this amount is transferred to the Treasury as a payment for collective welfare services included in the Services Budget. This part of the workers’ share is, in fact, a tax on profits. The remaining two fifths of the workers’ share is paid to the employee in cash, after the schedular tax on wages and salaries is withheld. Not more than LE 50 can be paid to an employee in any one year. The maximum for the cash payment is two fifths of this amount, or LE 20. Undistributed workers’ shares can be carried forward to following years. The distribution is graduated so as to reward the best employees. The workers’ shares totaled LE 10.1 million in 1962/63 and LE 11.9 million in 1963/64, and is estimated to have been LE 16.8 million in 1964/65.

The taxable profit is calculated net of licenses and royalties paid (reckoned as taxes in the budget). A payroll tax for social insurance of as much as 23 per cent of wages and salaries is also included in the costs of the enterprise. Since 1962/63, interest has been charged by the Public Organizations on all capital invested in an enterprise, including retained earnings.

Enterprises are subject to two kinds-of taxes: taxes on profits and taxes on some factors of production. (Of course, in some cases the enterprise can also carry part of the burden of taxes on the product.) The possibility of increasing domestic savings through an increase in either of the two kinds of taxes mentioned is discussed below.

Taxes on the factors of production have been increased since the beginning of 1963/64. Capital invested has been subjected to an interest payment of 4.5 per cent (2.0 per cent in 1962/63). In the beginning of 1964, the payroll tax for social insurance was increased from 17 per cent to 23 per cent of wages and salaries. These taxes were raised for the purpose of increasing domestic savings, but this objective does not appear to have been attained to any great extent. Prices were not allowed to be adjusted so that taxes could be passed on to consumers, since a principal objective of Egyptian public policy is to stabilize prices, which are controlled by the Government. The higher taxes do not seem to have stimulated an improvement in productivity on the part of the enterprises. Hence, the main effect seems to have been a reduction in profits and in the amounts available for transfer to the Public Organizations and the Treasury.11 The workers’ share of profits was also reduced; however, as noted above, only two fifths of this share (equal to 8 per cent of profits) is payable in cash, and the impact on consumption was small.

An increase in taxes on profits does not appear to be much more promising as a means of generating savings. If such a step did not increase prices or productivity, its main effect would be to increase tax revenue at the expense of other transfers to the Treasury and Public Organizations. Some of the revenue would come from private shareholders in enterprises that have not been fully nationalized; however, according to the Enterprises Budget, only about 8 per cent of total earnings distributed to shareholders was due to be paid to private shareholders in 1964/65. Also, as noted above, there are few private enterprises left. In 1963/64, about one fifth of the revenue from the schedular tax on profits was collected from noncorporate enterprises which, in general, can be assumed to be privately owned. This proportion has declined in every year since 1961/62. The remaining part can be assumed to be mostly in the trading sector.

The most important function of the taxation of enterprises is that funds are transferred from the Public Organizations to the Treasury. This makes funds available for intersectoral reallocation instead of the allocation between enterprises belonging to the same Public Organization. For that reason, taxation of enterprises is vital to the implementation of the plan, and better allocation of resources might be obtained as a result of heavier taxation.

A general sales tax merits consideration as a means of increasing domestic saving as well as improving allocation. Such a tax would generate additional revenue for the Treasury, and, if prices were allowed to increase, the tax revenue would be mainly at the expense of consumer spending rather than profits. In order to avoid handicapping exports, they should be exempt from the sales tax or a refund should be allowed. This would be quite feasible under a single-stage sales tax on manufactured goods. Imports of consumer goods should be subject to the tax.

Taxation of agriculture

In 1960, about 57 per cent of the active population was employed in agriculture. As pointed out above (p. 140), the relative importance of agricultural production has decreased in recent years.

Since the revolution there has been a redistribution of land; today, the largest farm has an area of 100 feddans (103.8 acres). In most cases, the landowner does not cultivate the land, but rents it to tenants. Most rented parcels are of 5 feddans and never more than 50 feddans. The rent is controlled by the Government.

Agriculture is being organized more and more into cooperatives. The farmer buys his supplies at the cooperative—seed, fertilizer, and fodder amount to about 85 per cent of input—at prices fixed by the Government, and sells his wheat and cotton there at prices slightly higher than the prices offered to farmers who are not members of cooperatives.

Agricultural output is mainly vegetable products; only one fifth is animal products. The most important products are cotton, wheat, maize, and rice; however, sugar cane and vegetables have recently been of increasing importance. Traditionally, cotton has been the most profitable crop, but only one third of the land has been allotted to cotton. At least one third has to be used for wheat; for the rest, the farmer is free to produce what is most profitable to him. In recent years, the cotton area has been reduced, partly because of increased areas of sugar cane in Upper Egypt and partly because of increased areas of vegetables and citrus fruits for export, which are more profitable in the Delta region. This substitution is believed to have increased farmers’ incomes.

After a period in which black market prices prevailed for meat, the control of meat prices was abandoned in 1964. This has resulted in very considerable price increases, most of which have gone to the farmer in higher incomes. The recent increase in world cotton prices has created a profit for the Public Organization for Cotton Trade; prices paid to the farmers for cotton also have been increased. The crop in 1964 was of a very fine quality; because of upgrading, the farmers were better paid than the year before, even without regard to the increased prices. The cost of farmers’ supplies has not risen recently, but land laborers’ wages have increased.

Although it is not possible to quantify the above-mentioned developments, it is believed that recent years have been years of increased incomes for farmers. The incomes of landowners have not risen; the rent of land is controlled, leases cannot be denounced, and therefore the prices of land are declining.

The recent increase in farmers’ incomes must, of course, be viewed against the background of the poverty still dominating the agricultural sector. Nevertheless, it can be argued that some part of the increase in agricultural income should be taken by taxation for the purpose of financing economic development. Revenues from (local and central) land taxes average only about 6 per cent of total agricultural incomes entering into the GNP.12 Even with a high marginal tax on agricultural incomes, the total direct tax burden would not be very heavy for some time. In fact, the policy in the U.A.R. has been to support the increase in agricultural incomes as an incentive to increased food production. Land cultivated for fruits and vegetables has for that reason been exempted from land taxes. Nearly all taxes have an element of disincentive, and tax policy should take this into consideration.

At present, agricultural incomes as such are not taxed. Only the assessed annual rental value of the land is taxed. The assessments have not been increased since the revolution in 1952; the last assessment, in 1956, reduced the assessed values. The annual rental value is 10 per cent of the assessed value, and the tax rate is 23.8 per cent including municipal taxes.

Because of the increase in farmers’ incomes, the defense tax on land was increased in 1960/61 from 3.5 per cent to 7.0 per cent of the rental value. The defense tax is the only part of the tax which is paid by the user of the land (the rest is paid by the owner), and is therefore the only means of increasing the taxes on the user. The higher tax burden on the users of land is not directly connected with the increase in incomes, and tax arrears have accumulated in years when agricultural incomes have declined.

There are several possibilities for taxing agriculture. First, the pricing of inputs and outputs could be used as an instrument of taxation. It is difficult to tell when a price has an element of taxation, but prices which yield a surplus for development purposes could be considered. Some profit is made on the supply of fertilizer, but the price was not increased when costs of production increased in 1964. A deficit is realized on the supply of pesticides. Water is supplied free. As indicated above, considerable profit is realized by the Public Organization for Cotton Trade through the sale of cotton on the world market. If prices were used more deliberately as an instrument of economic policy, additional revenues could be realized by the Government.

When prices of inputs do not reflect the costs of production, they become a poor guide for the decisions of the farmers as to what to grow and how to grow it. As noted above, some restrictions already have been put on the farmers’ freedom to substitute one product for another. If more emphasis is placed on the revenue element in the pricing of agricultural inputs, it may be necessary either to allow an increase in the prices of agricultural products (which would mean that the tax would fall on the consumer rather than on the farmer) or to employ more controls to make sure that the supply of products necessary for consumption, manufacturing, and export would be assured.

A second possibility is to tax farmers’ consumption. Some goods, such as sugar and tobacco, consumed by farmers are already taxed. Others, such as tea, kerosene, and edible oils, are priced by the Ministry of Supply so as to yield a surplus. A tax on manufactured goods as suggested above would also affect farmers, although less than it would city dwellers, who have higher incomes. Although reliable information on the farmers’ consumption patterns is not available, it seems likely that most of such an addition to taxation would be at the expense of consumption rather than of saving.

A third possibility for taxing the rising incomes of farmers is to change the system of land taxes. The assessment of the value of land is a measure of the income possibilities of a piece of land compared with land of other locations and qualities. Since assessments are made at ten-year intervals, the tax does not respond to changes in agricultural incomes occurring between assessment dates unless the tax rate is changed. It might be feasible to introduce some elasticity by using the defense tax as a parameter for economic policy in such a way that the defense tax rate would fluctuate with agricultural incomes. For example, a so-called formal flexibility scheme could be introduced by making the defense tax rate a function of an index of agricultural income.13 The nature of such an index will not be discussed here. A close study of the present agricultural statistics would be necessary to tell whether a satisfactory index could be devised. There is an old tradition of agricultural statistics in the U.A.R., and their quality is believed to be superior to that of the agricultural statistics of most of the other developing countries.

Even a good general index would not accurately describe the experience of all farmers. For example, failure of the crop in one region would not exempt the farmers there from increased taxation if agricultural incomes in general had increased. The timing might also cause some problems. Prompt computation of the index of agricultural income would be required to allow the tax to be assessed in January on the basis of the previous harvest year. There is also the possibility that farmers would have spent the extra income received from a good crop before the additional tax could be collected.

On the other hand, there are certain advantages. The suggested tax could be administered by the existing administration. A sliding scale of rates could be made in such a way that the tax burden would disappear in years of crop failure; then tax arrears would not be likely to accumulate as they do now. Also, an incentive would be given to improve farming. The farmer who does not use the best available techniques and who does not substitute the most profitable products would be penalized, while the best farmers would be rewarded. The tax could be made subject to the same exemptions as the present land tax and thereby protect the poorest farmers.

Whether or not the above scheme were adopted, the existing land taxation could be improved. The interval between the assessments could be reduced from ten years to five years at the most, thereby making property taxes more responsive to changes in price level and productivity. Reassessment could be staggered in different parts of the country so as to make the most efficient use of assessment personnel on a continuous basis. Also, more realistic assessments of agricultural land could be made. The rate of the defense tax could be further increased. These changes, however, would not present the same degree of flexibility with respect to value added in agriculture as would income taxation and a variable property tax rate.

Taxation of wages and salaries

During the years since the revolution, taxes on wages and salaries have been increased and made more progressive. A comparison of the marginal rates of the income taxes (schedular, general, and defense taxes) on wages and salaries and on other income for a married man with two children in 1964/65 is given in Chart 1.14 No salaries exceeding LE 5,000 are legally payable.

Chart 1.United Arab Republic: Marginal Tax Rates (Schedular Plus General Plus Defense) on Incomes1from Different Sources, 1964/652

1 Married couple with two children.

2 Logarithmic horizontal scale.

In evaluating the income taxes, it should be remembered that employees are also subject to a 10 per cent social insurance contribution for which no family exemptions are allowed. These contributions are much larger in the aggregate than the schedular tax on wages and salaries: for 1962/63, the social insurance contributions from employees are estimated at LE 25 million, against LE 7 million paid under the schedular tax. While the social contributions are for the benefit of participants, current benefit payments equal only about one tenth of premiums (including employers’ contributions), and in any case the employees’ contributions affect the immediate taxpaying capacity of workers.

The high apparent burden on wages and salaries should be interpreted in the light of the Government’s subsidy policy. The Ministry of Supply sells goods essential for the average family at prices which have been kept unchanged for some time. To limit the subsidies given in this way, the Ministry in some cases sells at the subsidized price only a limited ration, and sells a “free” quantity with a profit. Other goods are sold only at prices which yield a profit to the Ministry. The financial results of these operations are shown in Table 11.

Table 11.United Arab Republic: Financial Results of Supply Operations of the Ministry of Supply, 1963/64(In millions of Egyptian pounds)

(budget estimates)

Wheat flour (imported)16.3
Maize (imported)7.3
Sugar (subsidy on imports only)1.04.0
Edible oil1.70.4
Cotton seeds (subsidy on imports only)0.12.0
Other goods0.50.5
Source: Data supplied by United Arab Republic, Ministry of Economy and External Trade.

LE 8.6 million on imported wheat and LE 0.9 million on domestic wheat.

Does not include contributions to reserves and costs of storage, etc.

Source: Data supplied by United Arab Republic, Ministry of Economy and External Trade.

LE 8.6 million on imported wheat and LE 0.9 million on domestic wheat.

Does not include contributions to reserves and costs of storage, etc.

The subsidies in 1963/64 were close to LE 40 million, compared with LE 17 million in 1961/62. In effect, higher social insurance contributions of salary and wage earners have been followed by an increase in the subsidies paid on their food. But while the increased contributions have been limited to that group, the increased subsidies have been allowed to other groups as well. Thus, those in the agricultural sector have the benefit of the subsidies, but do not have the burden of higher taxation.

The social insurance premiums paid by employers, which in 1963/64 amounted to 23 per cent of payrolls, raise some economic problems. The cost of employing labor has increased, but the cost of capital equipment, most of which is imported, has not risen equally. This change in cost relations favors capital-intensive production methods and may induce enterprises to carry the substitution of capital for labor beyond the socially optimal point. In this way, the social insurance contributions may encourage a tendency, which already seems to be present in the U.A.R., to prefer capital-intensive methods involving the latest techniques even when these are not fully justified in the light of the cost of capital and labor.


Recent Developments

In the period July-December 1965, the United Arab Republic took several steps to strengthen its fiscal situation. These are described briefly below.

Goods and services

It became clear in the second half of 1965 that consumers’ prices would have to be increased if additional savings were to be realized. A general sales tax was not considered administratively feasible; instead, prices were increased for a wide variety of goods, covering about 70 per cent of expenditures in the average family budget (including increases in the prices of items sold by the Ministry of Supply). The revenue from price increases is channeled into the Treasury in various ways. For goods produced in enterprises that are in part privately owned and for goods partly imported, consumption taxes were introduced. For goods produced by publicly owned enterprises, the revenue from the price increase is allocated to special Treasury-controlled funds. For goods sold by the Ministry of Supply (whether domestically produced or imported), the revenue is directly allocated to the Services Budget. The revenue from the price increases is expected to be LE 80-90 million a year.

The Ministry of Supply is seeking to obtain a net profit on its operations by increasing prices on unrationed sugar, by reducing the subsidy for bread and raising the price of flour, and by increasing revenues from tea, rice, and beans.

Soft drinks were made subject to tax: 100 per cent when produced from imported concentrates and 33 per cent otherwise. The tax on alcoholic beverages and on all but the cheapest brands of cigarettes was increased. Prices of consumer durable goods were raised in two steps—in July and in December—and are now 50 per cent above prices in June 1965. Prices of locally produced cosmetics and other luxuries, cloth, domestically produced automobiles, wood, and butagas also were raised.

Customs duties on many nonessential goods—glass products, carpets, chinaware, etc.—and on consumer durable goods were increased substantially. The increase in the duty on automobiles was between 70 per cent and 250 per cent; for other items, the increase averaged 100 per cent.


The defense tax on land was increased from 7.0 per cent to 10.5 per cent; higher prices for fertilizers are expected to yield an additional LE 6 million.

A heavy burden will be placed on the agricultural sector in the form of collection of loan arrears to the Agricultural Bank: the revenue from this source is estimated at LE 14 million for the fiscal year 1965/66.


A forced savings program for wage and salary earners was introduced in July 1965. This amounts to the wage or salary for one-half day’s work each month.

More recently, the global income tax was increased by 5 percentage points for incomes in excess of LE 5,000; however, the revenue effect of this is negligible. In addition, the defense tax on wages and salaries was raised by 0.5 per cent for incomes below LE 400, 1.0 per cent for incomes between LE 400 and LE 800, and 2.0 per cent for incomes in excess of LE 800. Finally, the defense tax on income from movable property, profits, and professional incomes was increased from 7.0 per cent to 10.5 per cent.

Social Security

The coverage for social security is being extended and a voluntary scheme is being introduced for self-employed persons and employers.

Le régime des impôts en République arabe unie (Egypte)


Au cours des douze dernières années, la République arabe unie a passé d’un régime de libre entreprise à un système où, dans une large mesure, l’Etat possède et contrôle les exploitations. L’étude explique pourquoi il a fallu maintenir le système traditionnel des impôts sous le nouveau régime; en effet, les politiques de prix et de salaire ne sont pas parvenues à susciter l’épargne correspondant au rythme élevé des investissements.

Au cours des dernières années, un pourcentage de plus en plus important des recettes fiscales est provenu des impôts sur les biens et services; il s’est chiffré à 75 pour cent en 1963-64. La proportion des impôts a augmenté par rapport au PNB; en 1963-64, ce rapport était de 19,1 pour cent, dont 4,3 pour cent représentait les contributions de la Sécurité sociale. Par ailleurs, les rapports marginaux d’impôts sont élevés; en 1963-64, le rapport entre l’augmentation des recettes fiscales et l’accroissement du PNB était de 30,3 pour cent, plus 9,1 pour cent, représentant les versements de la Sécurité sociale.

Les bénéfices des entreprises, ainsi que certains produits sont frappés d’impôts. L’imposition des bénéfices a eu une incidence favorable sur la répartition des ressources mais n’a pas eu d’effet notable sur l’épargne intérieure. Afin d’augmenter les ressources excédentaires que l’Etat pourrait consacrer à de nouveaux investissements, l’étude propose une taxe générale sur les ventes. Les impôts frappant les salaires et les traitements ont été majorés et sont maintenant élevés, notamment à la suite de l’institution d’un système de sécurité sociale; en même temps, l’Etat accorde de fortes subventions aux biens de consommation essentiels. Cependant, les impôts semblent bien légers dans le secteur agricole; l’étude propose diverses méthodes qui permettraient de relever l’assiette des impôts dans ce secteur—y compris un perfectionnement du régime des impôts fonciers et une majoration des prix des biens de consommation et des approvisionnements agricoles.

El sistema tributario de la República Arabe Unida (Egipto)


El sistema económico de la República Arabe Unida que anteriormente fuera de libre empresa, en los últimos 12 años ha sido transformado en un sistema que en gran parte es de empresa estatal y regulado por el gobierno. Este estudio explica que en razón de que las políticas de precios y salarios no han logrado el ahorro que un alto nivel de inversión requiere, ha sido necesario continuar con el sistema tributario tradicional bajo el nuevo régimen.

En los últimos años, la parte de los ingresos tributarios que proviene de los impuestos percibidos sobre bienes y servicios ha acusado un aumento cada vez mayor; en 1963-64 alcanzó a ser del 75 por ciento. La relación entre los impuestos y el PNB ha ido en aumento; en 1963-64 era de 19,1 por ciento, incluyendo un 4,3 por ciento de contribuciones de seguro social. También los coeficientes marginales de impuestos son elevados; en 1963-64 la relación entre el aumento de los ingresos tributarios y el aumento del PNB fue del 30,3 por ciento, más un 9,1 por ciento por concepto de contribuciones al seguro social.

Tanto las ganancias de las empresas como algunos bienes se encuentran gravados. Los impuestos sobre las ganancias han producido una mejora en la distribución de los recursos pero no han surtido ningún efecto perceptible sobre el ahorro interno. Para aumentar los recursos gubernamentales sobrantes que pudieran utilizarse en nuevas inversiones, el estudio propone un impuesto general sobre las ventas. Se han aumentado los impuestos sobre los salarios y sueldos y actualmente son bastante elevados, en parte como consecuencia de la creación de un sistema de seguro social; al mismo tiempo el Estado concede subsidios considerables sobre los bienes de consumo básicos. Sin embargo, según parece, al sector agrícola se le grava muy poco; en el estudio se discuten diversos métodos para incrementar la carga impositiva sobre este sector, incluyendo el perfeccionamiento del impuesto territorial así como el aumento de los precios de los suministros y bienes de consumo destinados a los agricultores.

In the tables throughout this issue, and in the English text of the papers

  • Dots (…) indicate that data are not available;

  • A dash (—) indicates that the figure is zero or less than half the final digit shown, or that the item does not exist;

  • A single dot (.) indicates decimals;

  • A comma (,) separates thousands and millions;

  • “Billion” means a thousand million;

  • A hyphen (-) is used between years or months (e.g., 1955-58 or January-October) to indicate a total of the years or months inclusive of the beginning and ending years or months;

  • A stroke (/) is used between years (e.g., 1962/63) to indicate a fiscal year or a crop year.

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Direction of Trade

The great expansion in world trade in recent years has emphasized the importance of current information on the developments and shifts in trade patterns of the industrial and less developed countries. The Direction of Trade (DOT) has been designed to meet this need.

DOT assembles and makes rapidly available detailed trade-by-country information for almost all countries of the world, arranged in a uniform pattern of partner countries and expressed in U.S. dollars. Monthly issues provide the latest data for the current year and comparative data for the preceding year on each country’s trade with all other countries. Totals are shown for the major geographic and economic areas. An annual issue gives detailed country data for several years and includes world totals and a number of summary and analytical tables for major areas.

DOT is published jointly by the International Monetary Fund and the International Bank for Reconstruction and Development. This publication continues an earlier series published by the Fund, the World Bank, and the United Nations under the title Direction of International Trade.

The subscription for the monthly issues and the annual issue is $10.00 a year. Single copies of any monthly issue will be sent for $1.00, and copies of the annual issue may be purchased at $3.00 each.

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Mr. Lotz, economist in the Fiscal Affairs Department, is a graduate of Copenhagen University. He was formerly with the Economic Consultant of the Danish Tax Department.

See Bent Hansen and Donald Mead, The National Income of the U.A.R., 1939-1962 (Institute of National Planning, Cairo, July 21, 1963).

Fiscal year July 1-June 30.

See José C. Sanchiz, “Money and Banking in the United Arab Republic,” Staff Papers, Vol. XII (1965), pp. 322-23.

If gross collections of social insurance premiums (including government contributions) are included in taxes on income, the relative importance of taxes on goods and services dropped to about 58 per cent by 1963/64.

Flexibility is defined as the increase in tax revenue as a percentage of the increase in GNP in the same period. Built-in flexibility is the same percentage, if it is assumed that the tax rates were unchanged in the period.

Total tax arrears (including agreed installment payments) accumulated for taxes on income and property are estimated to be about LE 90 million. To collect these arrears, it is planned to increase the number of tax collectors from 270 at the beginning of 1963/64 to about 470 by the end of 1965/66. About one third of total income tax collections in 1962/63 represented collection of tax arrears. It is estimated that the percentage has increased considerably since 1963/64.

See footnote 5.

Twenty per cent of the total value of exports of rice and onions is approximately LE 7-8 million.

The nationalization of enterprises was achieved by the issuance of negotiable bonds, which, at time of issue in 1961, bore 4 per cent interest, and were redeemable after 10 or 15 years.

Extra reserves would, of course, change the distribution described above. For example, if the revenue from the 5 per cent for government bonds is correct (LE 2.8 million in 1962/63, LE 3.3 million in 1963/64, and LE 4.5 million in 1964/65—see next paragraph in text), then net profit was LE 56 million in 1962/63, LE 66 million in 1963/64, and LE 90 million in 1964/65. Workers’ shares of LE 10.1 million in 1962/63, LE 11.9 million in 1963/64, and LE 16.8 million in 1964/65 then can be calculated at only 18 per cent of net profit in 1962/63 and 1963/64 and 19 per cent in 1964/65. This indicates that about 13 per cent of net profit was retained as additional reserves: I, net profit, 100 per cent; II, legal and additional reserves, 23 per cent; III, government bonds, 5 per cent; IV, workers’ share, 18 per cent; and V, profits tax, 22 per cent. The distribution was as follows: VI, shareholders’ share, 32 per cent; VII, Treasury’s share, 38 per cent; VIII, workers’ share, 7 per cent; and IX, own reserves, 23 per cent.

These estimates depend wholly on the assumption that 5 per cent of net profit is used by all enterprises to purchase government bonds. Some check on this can be derived from a comparison between the calculated profits tax and actual collections. Twenty-two per cent of the above-calculated net profits is LE 12.3 million for 1962/63 and LE 14.5 million for 1963/64, which compares with collections from corporations of LE 10.1 million in 1962/63 and LE 13.0 million in 1963/64. It would seem that the difference can be regarded as explained by the payment of arrears of taxes.

A study made by the Ministry of Industry shows that the rate of profit in the industrial sector declined from 1961/62 through 1963/64. This was caused by an increase in costs, met only in part by an increase in productivity.

GNP in 1962/63 was LE 1,680 million: of this, 27.8 per cent (LE 467 million) was derived from agriculture. In the Services Budget, revenue from the land tax was LE 9.8 million, from the defense tax LE 6.2 million, and from local land taxes LE 14.0 million, a total of LE 30.0 million. To this, of course, must be added the burden of indirect taxes, etc.

A scheme like this was in effect in Denmark for a number of years. The amount of subsidies paid to the municipalities to reduce the land taxes was regulated each year as a function of the average yield per acre in agriculture. This scheme required very reliable statistics.

The deductions under the general income tax in respect of schedular taxes are included in the total marginal rates, which are calculated as the sum of the marginal rates minus the product of the marginal rates. Let G represent the marginal rate for the general income tax, S the schedular tax (including defense), and T the total marginal rate. Then the tax on increment of income I will be dI·T = dI· (1 — S)G + dI·S so that T = G + SSG. The calculations assume that only one schedular tax and no other direct taxes are paid.

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