Egypt’s Targeted VAT Reform: Broadening the Base Without Raising Rates
On June 29, 2025, Egypt’s House of Representatives approved a set of targeted amendments to its Value-Added Tax (VAT) framework. The Egyptian Tax Authority (ETA) designed these reforms to expand the tax base and improve equity, while maintaining the standard VAT rate at 14% and preserving existing exemptions on essentials like food, healthcare, and education.
Highlights of the Reform
- Construction Sector
- VAT on construction services now aligns with the standard 14% rate, replacing the previously lower 5% schedule tax.
- Crucially, contractors may now deduct input VAT on goods, machinery, and services—lowering effective costs and encouraging formalization and use of e-invoicing systems.
- Commercial vs. Administrative Units
- Administrative units in non-commercial areas remain exempt.
- Those situated within commercial complexes (e.g., malls) are now subject to a 1% levy on sale or rental value, aligning tax treatment with regular retail spaces.
- Energy Sector
- Crude oil (distinct from finished petroleum products) is now liable to a 10% schedule tax, though domestic fuel prices should remain unaffected, as the Egyptian General Petroleum Corporation (EGPC) is the sole purchaser and has pre-budgeted the expense.
- Tobacco & Alcohol Taxation
- Cigarette taxes increased by EGP 0.50 per pack, the first rise since 2023.
- Alcoholic beverages now face a tiered, fixed schedule tax based on alcohol content, replacing the ad-valorem tax on sale price, in line with WHO guidance.
Effective Date & Legal Foundation
These amendments were enacted through Law No. 157 of 2025, passed on July 17, 2025, and came into force on July 18, 2025.
Broader Impacts & Context
- Analysts anticipate a modest uptick in inflation, particularly in sectors like tobacco and potentially electricity, as a consequence of this VAT expansion—though essential goods remain unaffected.
- The reforms reflect a strategic, surgical approach—rather than blanket tax hikes—to enhance equity, support sector formalization, and modernize tax administration. This method aligns with standards from organizations like WHO and UNWTO.
Summary Overview (Effective July 18, 2025)
Sector | Change |
Construction Services | VAT raised to 14%; full input VAT deductibility |
Administrative Units | Commercial locations taxed at 1%; non-commercial remain exempt |
Crude Oil | Introduced 10% schedule tax: no impact on consumer fuel prices |
Cigarettes | Fixed tax increased by EGP 0.50 per pack |
Alcoholic Beverages | Shift to alcohol-content-based tiered fixed schedule tax |
Conclusion
Egypt’s VAT amendments strike a careful balance between fiscal sustainability and social sensitivity. By targeting specific sectors like construction, commercial real estate, energy, tobacco, and alcohol—rather than broad-based rate increases—the government seeks to foster fairness, boost compliance, and support formal economic activity, all while avoiding undue pressure on households.