Egypt Introduces Targeted VAT Amendments to Broaden Tax Base

Egypt has enacted targeted VAT amendments, expanding the tax base in construction, real estate, energy, tobacco and alcohol, while preserving exemptions for essentials and promoting digital invoicing to boost equity and compliance.

On June 29, 2025, Egypt’s House of Representatives approved a series of limited but strategically significant amendments to the country’s Value-Added Tax (VAT) framework. Announced by the Egyptian Tax Authority (ETA), the changes are part of a broader effort to enhance tax equity, correct sector-specific distortions, and expand the tax base without increasing the general VAT rate or altering exemptions for essential goods and services.

Rather than overhauling the tax system, the amendments aim to fine-tune specific mechanisms to support the government’s fiscal sustainability goals, particularly its commitment to increased investment in human capital and public service delivery.

The reform package, which comes amid ongoing economic restructuring efforts, signals Egypt’s intention to align more closely with international tax standards while responding to domestic sectoral demands. By introducing technical adjustments across construction services, real estate, energy, tobacco, and alcohol taxation, the government seeks to simplify compliance, reduce distortions, and incentivize formalization—without placing additional burdens on low-income consumers or key public sectors.

Objectives behind Egypt’s VAT reform

The latest VAT amendments reflect the Egyptian government’s ongoing efforts to recalibrate its fiscal strategy by targeting efficiency, equity, and modernization rather than across-the-board tax increases. At the core of the reform is the goal of broadening the tax base—bringing previously under-taxed or inconsistently taxed sectors into the formal system—while addressing distortions that have created uneven tax burdens across industries.

A key priority is aligning Egypt’s tax policies with international standards, including those promoted by the World Health Organization (WHO) and the World Tourism Organization (UNWTO). These changes are intended not only to ensure regulatory coherence, but also to enhance Egypt’s attractiveness to international investors who often seek clarity and predictability in fiscal regimes.

The reform also serves a redistributive function, aiming to improve tax equity by shifting more of the burden onto sectors with greater capacity to pay, such as construction and commercial real estate, while preserving exemptions for essential services like healthcare, education, and basic food commodities.

Finally, the amendments form part of a broader strategy to digitalizee Egypt’s tax administration, a long-standing government objective. By encouraging formal invoicing and enabling full deductibility of input VAT, particularly in sectors like construction, the reform incentivizes documentation and transparency—key pillars of Egypt’s transition to an electronic tax system.

Overview of Egypt VAT amendments

Egypt has opted for surgical precision over blanket policy changes—adjusting VAT rules only in areas where distortions persist, signalling its commitment to efficiency and fairness while avoiding inflationary risk.

Contracting and construction sector

• Shift to standard VAT (14  percent) from the previous 5  percent schedule tax in construction services, aligning the sector with the general tax framework.
• Full deductibility of input VAT, which means, contractors can now reclaim VAT on goods, machinery, and subcontracted services.

By allowing full deduction of VAT on inputs, contractors not only reduce their net costs—but also gain a powerful financial incentive to formalize their operations with proper invoicing. This, in turn, supports Egypt’s digital transformation of tax administration—routing more transactions through the ETA’s e‑invoicing and reconciliation system, which has rapidly become essential for audit efficiency and compliance.

Administrative units and commercial real estate

Location-based criteria are now applied to achieve VAT clarity, specifically:

• Administrative units in non‑commercial zones remain exempt; while
• Those in malls or business centres now pay a 1  percent levy on sale or rental value.

By applying the 1 percent levy to administrative units in malls and shopping centres, the government is closing a long-standing tax gap that allowed comparable commercial spaces—such as retail shops—to be treated differently based on subtle location distinctions. This adjustment ensures that businesses operating in similar economic environments are taxed evenly, fostering a more coherent and equitable tax landscape while reducing opportunities for tax avoidance

Energy sector

The following measures have been taken to ensure resource extraction contributes more accurately to public accounts:

• Crude oil taxed at 10  percent schedule rate, but petroleum products remain unaffected—ensuring no escalation in domestic fuel prices.
• Consumer insulation: with EGPC as sole crude purchaser and the tax pre-budgeted, the cost impact is neutralized

Tobacco and alcohol adjustments

Seizing a dual opportunity, the government tweaked “sin tax” instruments to help public finances and nudge health outcomes—adding modest hikes where political and economic conditions allow.

Tobacco products

Egypt’s recent adjustments to its tobacco taxation reflect a strategic alignment with global health priorities, particularly those advocated by the WHO.

The WHO’s “3 by 35” initiative urges countries to increase taxes on tobacco, alcohol, and sugary drinks by 50 percent over the next decade to curb consumption and raise public health revenues. This approach has been adopted by several nations, including Colombia and South Africa, demonstrating its effectiveness in reducing consumption and generating significant revenue.

In response, Egypt has implemented a fixed excise tax increase of EGP 0.50 per pack on cigarettes, marking the first such hike since 2023. This move is part of a broader strategy to enhance public health and increase state revenues amid ongoing financial pressures.

By expanding cigarette tax brackets and introducing this excise increase, Egypt aims to discourage tobacco consumption, particularly among price-sensitive groups, and to align its tobacco taxation policies with international best practices. These measures also contribute to the government’s efforts to broaden the tax base and support increased spending on human development.

Alcoholic beverages

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