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Tax Free Profits

Ebusiness
Authorities have no clue about electronic business
Tax Free Profits
Online trading and ad sales slip through the Egyptian internet with no regulations imposed by the government.
4/5/2017 | Cairo

Mohamed El Sobky’s dance music channel on YouTube has more than one million subscribers signing on for songs, advertisements and movie trailers. Each of the channel’s videos has hundreds of thousands of views. But illegal copies of El Sobky’s videos can also be found on other YouTube channels and since they are also registered under his name, El Sobky profits from the views of the copies as well.

Videos attracting the highest number of Egyptian viewers and advertisers include old and new songs, entire rare and popular movies, and dance clips taken from movies. Videos of wedding dances and songs as well as festivals also draw large numbers of followers.

Those who once videotaped weddings and festivals for leisure now commercialize their content by selling the music as ringtones and establish websites instead of relying solely on YouTube. Mahmood Matba’a, who was the first to present festivals on a small online forum that later blossomed into an interactive website and Morjan Mohamed Morjan, the owner of a popular online library of this content, have both earned small fortunes.

There are no official, accurate statistics on the money exchanged in this unofficial economy, but the Federation of Egyptian Industries estimates the market turnover to exceed USD 1 trillion. This figure includes the activities of street vendors, owners of unlicensed factories, those working in free professions and all the activities on the internet, including electronic trade.

Virtual traders

One Egyptian shopping website receives 30 million visits every month. Electronic trade activities are carried out on social-networking sites such as Facebook and messaging applications like WhatsApp.

Shopping is done on the internet and the goods are delivered to homes. These virtual bargains are made without mediators or taxes. However, websites charge fees in exchange for their selling and delivery services. They have their own shares of online trade among users to increase their advertisements and profits.

According to Forbes, the value of the best known shopping website in the Arab world has an estimated worth of USD 800 million. Established in 2005, with its main headquarters in Dubai, the website has commercial offices in three Arab countries: Saudi Arabia, Kuwait and Egypt and a technical development center in Jordan. The website’s users in Egypt do not pay any taxes as there is no law regulating online trade, unlike in UAE, Saudi Arabia or Kuwait.

The advertisements published on shopping sites offer services other than trading including at-home psychological counselling sessions for about L.E. 200 (about USD 10) compared to L.E. 150 (8 USD) for similar sessions provided at specialized centers in Cairo. Some advertisements even identify the diseases covered in such sessions: depression, paranoia, drug addiction, recovery from abuse and counselling for married couples.

Tax free business

The Egyptian Tax Authority estimated the country’s unofficial economy in 2015 as 50-60% of the country’s economy. It has not imposed any taxes on this sector yet especially since such transactions are between Egyptians and companies outside Egypt.

MP Mustafa Bakri proposed a law to impose taxes on the advertisements published on websites. The draft law, proposed in July 2016, aimed at enabling the Egyptian Tax Authority to impose fees on the advertisements published on Google products, social media and other websites like the newspapers and magazines, which pay fees for the advertisements they publish. However, the parliament has not discussed this draft law or taken any serious steps towards imposing taxes on the commercial activities on the internet.

The state does not touch these profits because it simply does not know about them. These profits are not registered in the economy; net profits outside the official markets. However, no criminal activities are involved. Egypt does not have a law regulating online trading and the new technology. No taxes are imposed on companies established outside Egypt even if they have headquarters here.

 

 

 

 

 

Image: VICTORIA HAZOU/AFP/Getty Images