Home | | Contact Us

Constitutional Court Upholds “Optio

Constitutional Court Upholds “Optional Registration” for Sales Tax
The Egyptian Supreme Constitutional Court (“SCC”) endorsed the constitutionality of Article 19 of the General Sales Tax Law No. 11 of 199.[1] The Article regulates the process of voluntary registration for natural and juridical persons, in cases where the compulsory registration threshold has not been attained.[2]
Background
In Article 18, the Law established the so-called “compulsory threshold for registration”. According to this stipulation, persons shall be bound to register with the Tax Authority in case their total sales attain 54,000 pounds in any financial year. In this case, such a person would be addressed by the Law, would be obligated to carry out the obligations outlined in the law, and would benefit from the advantages it grants. Among these advantages, for instance, the text of Article 23 of the Law, which permits the deduction of previously paid taxes or charged on inputs or taxes paid or charged at every stage of distribution from sales taxes due upon his activity. In Article 19, however, the Law established the so-called “optional registration” mechanism, whereby it provided those who do not attain the compulsory threshold with the option to register their names and details.
The Case and SCC’s Decision
A company had demanded the SCC to declare Article 19 of the Law unconstitutional, on the basis that it is in breach of the “equality” principle established by Article 53 of the Egyptian Constitution. The claimant company, a company that never attained Article 18’s EGP 54,000-threshold in any of its financial years, demanded its clearance from its sales tax dues. The company argue that its optional registration under the terms of Article 19 inflicted a negative impact on its performance; it put additional financial burdens that hindered its ability to compete with other companies that did not reach the compulsory threshold of registration and in the meantime did not register optionally. The SCC rejected the claimant company’s arguments. The Court declared that the challenged Article regulates optional registration through general and abstract rules, and without discrimination. The SCC indicated that the Article balances between obligations and advantages of optional registration, which achieves the intended goals of social justice.
Conclusion
The importance of the Decision of the SCC appears in light of the current discussions regarding the promulgation of the Value Added Tax in replacement of the General Sales Tax Law No. 11 of 1991. With the anticipation of the compulsory registration threshold after amending its value, the optional registration, which was constitutionally approved, may be utilized by the tax legislator to pursue the same purposes envisioned when introduced in the Sales Tax Law. This Article is in line with the legislator’s attempt to widen the tax base and limit tax evasion guaranteeing a higher tax revenue. [1] Supreme Constitutional Court, Case No. 295 for the Judicial Year 25, 7 May 2016, Egyptian Gazette, Issue 14 (bis) (a), 16 May 2016. [2] Law No. 11/1991 issuing the General Sales Tax Law, Official Gazette, Issue 18 (cont.) (a), 2 May 1991.
The Egyptian Supreme Constitutional Court (“SCC”) endorsed the constitutionality of Article 19 of the General Sales Tax Law No. 11 of 199.[1] The Article regulates the process of voluntary registration for natural and juridical persons, in cases where the compulsory registration threshold has not been attained.[2]
Background
In Article 18, the Law established the so-called “compulsory threshold for registration”. According to this stipulation, persons shall be bound to register with the Tax Authority in case their total sales attain 54,000 pounds in any financial year. In this case, such a person would be addressed by the Law, would be obligated to carry out the obligations outlined in the law, and would benefit from the advantages it grants. Among these advantages, for instance, the text of Article 23 of the Law, which permits the deduction of previously paid taxes or charged on inputs or taxes paid or charged at every stage of distribution from sales taxes due upon his activity. In Article 19, however, the Law established the so-called “optional registration” mechanism, whereby it provided those who do not attain the compulsory threshold with the option to register their names and details.
The Case and SCC’s Decision
A company had demanded the SCC to declare Article 19 of the Law unconstitutional, on the basis that it is in breach of the “equality” principle established by Article 53 of the Egyptian Constitution. The claimant company, a company that never attained Article 18’s EGP 54,000-threshold in any of its financial years, demanded its clearance from its sales tax dues. The company argue that its optional registration under the terms of Article 19 inflicted a negative impact on its performance; it put additional financial burdens that hindered its ability to compete with other companies that did not reach the compulsory threshold of registration and in the meantime did not register optionally. The SCC rejected the claimant company’s arguments. The Court declared that the challenged Article regulates optional registration through general and abstract rules, and without discrimination. The SCC indicated that the Article balances between obligations and advantages of optional registration, which achieves the intended goals of social justice.
Conclusion
The importance of the Decision of the SCC appears in light of the current discussions regarding the promulgation of the Value Added Tax in replacement of the General Sales Tax Law No. 11 of 1991. With the anticipation of the compulsory registration threshold after amending its value, the optional registration, which was constitutionally approved, may be utilized by the tax legislator to pursue the same purposes envisioned when introduced in the Sales Tax Law. This Article is in line with the legislator’s attempt to widen the tax base and limit tax evasion guaranteeing a higher tax revenue. [1] Supreme Constitutional Court, Case No. 295 for the Judicial Year 25, 7 May 2016, Egyptian Gazette, Issue 14 (bis) (a), 16 May 2016. [2] Law No. 11/1991 issuing the General Sales Tax Law, Official Gazette, Issue 18 (cont.) (a), 2 May 1991.