The Tax System in Usa and Egypt Finance Essay

The tax system of any country is born out of a tax policy. It plays a vital role in the fiscal policy of that country; be it Kuwait, Egypt or America. The tax system of different countries varies according to country and the government enforces certain additions, revision and review to the tax system of that country over a certain period of time. Another characteristic of the tax system of a country is that it is flexible and continuously changes in order to adapt to the essentials of the socio-economic conditions. The tax system is also influenced by the designs of that tax system with regards to history, the political system and the economic system. In this report, we analyze the tax systems of two countries. One is America where the tax system is a complex and complicated system as there are different states which enjoys the freedom as specified by the federal system. The other country is Egypt, which has a Semi-presidential republic which implemented decreased corporate taxes resulting in a stated 100% increase in tax revenue. In the end, will be discussed on which one of the two systems are better and why.

The codes of the tax are mainly pertained to the taxation of the ship owners, natural wines, vaccines and insurance companies. Upon a quick look, it is evident that the tax system will become more complex as the tax levied in states and cities are further complicated. On the other hand the Egyptian tax system comprises of two types of taxes. They are direct and indirect taxes. It was first introduced in 1939. From there, till now, the taxes have been imposed on business and labor gains and on agricultural land. Other tax laws were issued in the following years including an urban building tax in 1954; a customs regime in 1963; stamp duties in 1980; consumption taxes in 1981 which in was replaced by the General Sales Tax Law No. 11 of 1991; and - a new income tax law in 1981 were introduced. This Income Tax Law was amended in 1993 by Law No. 187 of 1993.

US tax system in America

There is a principle of competition involved in the tax system of the USA. This means that there is a competition between the governments of the states and local which mainly relates to their rights to enforce personal and corporate income taxes. Thus it complicates the concept of tax law with that of the taxpayers and they will have to file returns of tax for all the three levels of the government as explained earlier. The tax burden in the USA is comparatively low for individuals, but for companies it is surprisingly high. Moreover, the fiscal system of USA allows the icon of what is known as competitive federalism. The dominion of tax is split among the federal, the state and the local governments. For example, the personal income tax is charged by all the three systems of governments i.e., by federal, the states, and even local communities. The burden of tax is therefore considerably different from region to region, both for individuals and for companies. To add more, the primary source of revenue to the federal government is the personal income tax. The personal income tax is generated hardly five times when compared to corporate income tax. By this, it is obtained by the states in the form of funding from both personal income tax and consumption taxes. On the other hand, the local governments impose the taxes on real and personal property. There is a enforcement of taxes by the local and state communities from 0-9.8%.

This is calculated as a single-phase tax which is not in the case of federal government. The ability of a tax payer to pay the tax is governed by the ability to pay principle which is to put into practice in the shape of a progressive income tax scale which has various restrictions to itself. The highest rate of tax returns in the USA applies from USD 312,000 upwards. There is no differentiation made among different kinds of income, which is distant from capital gains, on which individuals pay tax at a special rate of 15%. Life insurance policies are taxed on their earnings. In the USA there was double taxation for the dividends until 2003. Accordingly, a company was responsible for corporate income tax the mainly based on its profits. Moreover, on the event of the distribution of this, it was compulsory for the shareholder to pay personal income tax without being able to claim a tax credit. Dividends like these are being taxable till now and are been paid at a rate of only 15% for the shareholder. Thus, the profits of companies that function in more than one state are taxed in the state of their origin. Another characteristic of the US Taxation is the debt regarding the corporate income tax. While calculating the corporate income tax the debt incurred by the company is compared with that of the alternative minimum tax (AMT). the AMT is charged at a rate of 20% on taxable income which has a special method of calculation and is payable if it is higher than the computed corporate income tax debt. However exemption are also established in the case of small companies who has an average gross revenue in the previous three tax years which has not crossed USD 7.5 m, and companies in the year they were set up. The income tax calculation of the United States is shown below:

Tax System in Egypt

The tax system in Egypt is different from that of the tax system in USA. In Egypt the corporate income and gains tax come under a new tax law which is law No. 91 which was introduced in 2005. According to this law, the corporations in Egypt are imposed corporate profits tax on their profits derived from their business in Egypt and abroad, if not in the case, the foreign activities are carried out through a stable establishment located abroad. Whereas the foreign companies have their head offices in Egypt are subject to tax only on their profits derived from Egypt. In the case of oil production companies, the tax levied is 40.55%. Whereas, there is a 40% tax to be paid by the Suez Canal Company, Egyptian General Petroleum Company (EGPC) and Central Bank of Egypt. The tax system of Egypt is divided into two groups. They are administration of a company and the dividends distributed. According to the administrative point of view, the companies must pay their annual income tax along with their true financial statements and the supporting documents preceding the 1st of May every year or in the ending of four months from the financial year end. The tax payer should sign the tax return and he has the right to file a request if he needs extension from the due date of filing the tax if they can pay an estimated amount of tax. He must file the request 15 days before the due date.

Moreover, the estimated tax due must also be paid before the due date. The government can grant extension up to 60 days, during which, the companies can file their tax return in 30 days. The dividends of a company are not liable to pay withholding tax as they are paid from the corporate incomes which can be taxed under the normal rules. However, there is an exemption of tax from the income derived from the overseas business of a company. They are also exemption of interest on bonds that are listed on the Egyptian stock exchange. Moreover, the corporate tax for the companies are computed according to the generally accepted accounting and commercial principles that are tailored for tax purposes by particular legal provisions which basically concerns depreciation, provisions, inventory valuation, inter-company transactions and expenses. In the case of a company which has its origin in Egypt and which exists outside Egypt, can have an exemption from foreign tax if they provide adequate documents. The losses that have been incurred outside Egypt will not be counted for the calculation of income tax. Moreover, the agreements that have been performed in other countries and in the Arab Republic of Egypt with guide the credit for taxes paid abroad on income subject to corporate income tax in Egypt. In the case of group of companies which are called corporate groups are taxed differently under the corporate income tax purposes.

There is no provision for the Egyptian law for assessing the tax for corporate income tax under which group losses may be offset against profits within a group of companies. Another characteristic of the tax system in Egypt is that it contains the facilitation of transfer pricing. These provisions are based on the principle called “arm’s lengthâ€A. According to this principle, the income of a company is adjusted by the tax authorities if its taxable income in Egypt is deducted as a result of the provisions of the contracts that are different from those that are agreed by unrelated parties. On the other hand, there is no withholding tax that is charged on the distributed dividends by resident companies irrespective of the residence status of the enterprise. There is a free market exchange system in Egypt. There are no interference from the central bank or the Ministry of Economy and the exchange rates are determined by the supply and demand. The income tax for an entity is levied on the worldwide income of the residents of Egypt. On the other hand, the non-residents tax is assumed on the tax on income that is either earned or realized in Egypt. Given below is the table which shows the tax recipients by income source.

Analysis

According to the analysis, it can be said that the Egypt tax system is better than that found in the US system. This is because of the main fact that the tax system in US is diversified and the tax differs according to the state. On the other hand, the tax in Egypt is levied on the overall income universally in Egypt. Another reason is that the tax in the United States between the states has competition among them. An individual is subjected to tax for double taxation and there tax levied for everything whether the income derived inside or outside of the US. On the other hand, the tax system in Egypt; an individual is subject to tax only for the income derived inside Egypt. There is no withholding or transfer of tax. Whereas, in US there is withholding and transferrable tax and there is the intervention of the ministries in the levying of tax. On the contrary, in Egypt, there is no intervention by the bank or the ministries. This makes it better than the tax in United States.

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