As Part of Government Directive to

On 2 July 2018, the Ministry of Finance issued Decision No. 269 of 2018 (“Decision 269/2018”)[1] mandating that government payments above EGP 100,000 – including taxes and customs – be collected through an electronic payment system. Payments may still be made in cash only up to EGP 5,000; and payments between EGP 5,000 and 100,000 must be made by check. However, starting January 2019, these thresholds will be abolished and all payments collected by the government will have to be made electronically, regardless of their value. Decision 269/2018 comes into effect a day following its publication in the Egyptian Gazette, i.e. starting 3 July 2018.

Background

For quite some time now, Egypt has been increasingly aware of the urgency of switching to a cashless economy. This means that effective electronic payment systems are put in place to replace the wide use of cash in society, which is harder to track and so harder to channelize back into the economy. The general idea is to maximize the outreach of economic development, which is crucial in a society where a vast majority of the population is unbanked and a vast segment of businesses operate in the informal sector. On the one hand, integrating citizens in the banking system is supposed to open the door to savings, investment, and insurance, as well as give access to financing for homes, businesses, or for the coverage of other costs. More than ever, the government has an additional interest in moving to a cashless economy in order to integrate citizens and informal business owners into the tax system, which is essential for financing public spending on goods and services and bridging the deficit in State budget. This is why – against the backdrop of an economic reform program which took off with the IMF in 2016 – a Presidential Decree issued in February 2017 established the National Council for Payments (“NCP”)[2] with the mandate of reducing the use of cash in the economy and promoting the use of electronic means of payment on the national level. In order to achieve its purpose, NCP was tasked with developing a national payments system and a supervisory framework to oversee it. NCP’s goals as set out in the decree include ensuring the financial inclusion of individuals and informal businesses into the banking system, decreasing the cost of transferring money, increasing tax returns, protecting the rights of users of electronic payment systems, and ensuring competitiveness through supervising electronic payment service providers. NCP is chaired by the President. Its 15 other members include the Prime Minister, the Governor of the Central Bank, the Chairman of the Financial Regulatory Authority, the Ministers of Defence, and Interior, and the Head of the General Intelligence Service. The NCP Decree authorizes the Council to issue decisions necessary to set out the general framework for the operation and supervision of the national payment systems as well as the required legal framework. The Council is also authorized to ensure consistency and coherence among different government initiatives to develop electronic systems and to coordinate between these government entities. Along the same lines, the Prime Minister issued Decree No. 123 of 2017^[3] early last year obligating all State administrative units, municipalities, public authorities, and economic public authorities to pay all wages electronically, while prohibiting any other paper or cash payment methods except in emergency situations. The Ministry of Finance was put in charge of issuing directives for the implementation of these electronic payment systems.

Ministry of Finance Decision 269/2018

From requiring that all government payments be made electronically, the government has now moved to requiring collection to be made electronically as well. In this vein, Decision 269/2018 mandates that any money that is owed to the government, including taxes and customs, and that are above EGP 100,000, be paid electronically. As an exception, sums up to EGP 5,000 may be paid in cash, and sums between EGP 5,000 and 100,000 may be paid by check. The above thresholds are to be applied up until 1 January 2019 following which any payments made to government – regardless of value – will have to be made electronically. Failure to pay electronically will entail a 10% surplus over the payable amount that will be collected as “administrative costs”. Decision 269/2018 additionally obligates all government entities to deal with each other through the electronic payment system.

Conclusion

Financial exclusion can be broadly defined as “the lack of access by certain segments of society to suitable, low-cost, and fair financial products and services from mainstream providers”,[4] with the biggest mainstream provider of services being the government of course. It follows then that in its essence, the concept of financial inclusion entails a focus on raising basic financial literacy and awareness, as well as making available simple and easy to access financial services even in the most remote areas. In the above discussed decrees, and certainly the latest Ministry of Finance Decision 269/2018, the focus seems to be on establishing an electronic system for making and receiving payments. However, requiring that all payments made to the government – in such broad terms – be in electronic format regardless of value in less than six months given that the vast majority of citizens, and quite a large size of the economy, is unbanked might be too ambitious at the moment. Certainly, applying a 10% fine for failure to make electronic payment might end up with us in a skewed position where the fine is being implemented to the discrimination of the segments which the government in fact aims to include. In either case, keeping a threshold for smaller sums that is allowed to be paid in cash makes sense for the near future, or at least clearly limiting this obligation to tax and custom payments as the title of Decision 269/2018 seems to suggest at first glance.   [1] Ministry of Finance Decision No. 269/2018 on the collection of government payments including taxes and customs through an electronic payment system, Egyptian Gazette, Issue No. 148 (cont.), 2 July 2018. [2] Presidential Decree No. 89/2017 establishing the National Council for Payments, Official Gazette, Issue No. 6 (bis) (a), 13 February 2017. [3] Prime Minister Decree No. 123/2017 obliging all governmental agencies to pay out salaries for their employees through electronic payments (ATM), Official Gazette, Issue No. 2 (bis) (c), 15 January 2017. [4] ResearchGate, “Financial Inclusion: Issues and Challenges”, December 2013, Available through this link.