Egypt’s construction industry and tax policy experts are urging the government to exempt current and previously tendered construction contracts from the country’s newly amended Value-Added Tax (VAT) law, citing concerns about financial burdens and potential disruptions to ongoing infrastructure projects.
The call comes in response to Law No. 157 of 2025, enacted in June, which eliminated the fixed 5% “schedule tax” previously applied to construction and replaced it with the standard 14% VAT rate. The policy change is part of a broader push to align Egypt’s tax system with international standards and enhance overall compliance.
The Egyptian Tax Experts Association has formally requested that the new VAT rate not be applied retroactively to contracts that were already under execution or for which technical proposals had been submitted prior to the law’s enactment.
The group warned that retroactive application would impose unanticipated financial burdens on construction companies that had budgeted and priced projects based on the previous tax rate, potentially leading to project delays, renegotiation of contracts, or financial distress for smaller firms.
Impact on a Key Economic Sector
Egypt’s construction sector is a cornerstone of the national economy, accounting for around 20% of GDP, with an estimated 5.5 million direct employees and over 15 million indirect jobs. Any disruption in project execution could have broader implications for economic stability and employment.
Under the new VAT structure, contractors will be able to deduct input taxes — a feature that was not available under the non-deductible schedule tax. This change is expected to reduce tax cascading and enhance pricing transparency, particularly in the real estate development chain.
At the same time, tax experts caution that many projects currently underway were financially structured under the previous regime, and recalculating VAT obligations mid-project could compromise project viability and developer liquidity.
Revenue Gains and Policy Rationale
The move to the standard VAT rate is projected to increase state revenue from the construction sector from EGP 2 billion to EGP 6 billion annually, as per government estimates. Officials have argued that this transition will broaden the tax base, reduce evasion, and ultimately lower costs for end-users through deductible input taxes.
While the tax association has expressed support for the reform in principle, it continues to advocate for clarity in the forthcoming executive regulations, particularly regarding the treatment of transitional cases.
Awaiting Executive Guidelines
The government is expected to issue executive regulations in the coming weeks, which will define how the law is applied in practice. Industry representatives have emphasized the need for legal certainty to avoid disputes between contractors and project owners, especially for contracts with public sector entities.
With Egypt pushing ahead on national infrastructure and housing megaprojects, stakeholders in the construction industry say maintaining financial stability and regulatory consistency is essential for keeping timelines and budgets intact.
