What is the new “entertainment tax”?
The new entertainment tax (usually officially called “entertainment and amusement tax”) in Egypt is a tax that is levied on certain leisure activities, such as cinema, theatre, concerts, sporting events or amusement parks. And this includes all tourist activities, unfortunately including diving. The tax is 5-15% of the price of the activity and came into effect on 15 July 2023 in a surprise move. For example, 10% will be levied on diving. The government hopes that this will generate additional revenue of about 500 million Egyptian pounds per year, which will be used to improve public services, promote culture and support the tourism industry.
Is this tax a pure invention of the Egyptian state?
This is an interesting question we can ask ourselves in connection with the new entertainment tax in Egypt. But are there perhaps similar taxes in other countries? There are – and we don’t have to look far afield to find out.
Such taxes also exist in other countries, especially in Europe, but they differ in their design and scope. The amusement tax is a so-called local expenditure tax levied by the municipalities or countries and whose tax object is the financial expenditure for certain leisure activities. In Germany for example, there are various forms of amusement tax, such as the card tax, the slot machine tax or the prostitution tax. The legislative competence lies with the states, which authorise the municipalities to enact their own amusement tax statutes. The tax amount and the tax scale vary depending on the municipality and the type of amusement. The tax revenue accrues to the municipalities and amounted to about 985 million euros in 2016. Other European countries also have amusement taxes, which are mostly levied on admission fees for cultural or sporting events. For example, in France there is a cultural tax (taxe sur les spectacles), which amounts to between 3.5% and 6.5% of the admission price and the revenue from which is paid to the artists’ social security fund. In Italy there is an entertainment tax (imposta sullo spettacolo), which amounts to between 10% and 20% of the admission price and whose revenue goes to the state and the regions. In Spain there is a cultural tax (canon cultural), which is between 4% and 10% of the admission price and whose revenue goes to the Autonomous Communities.
So this tax is not that uncommon. Nevertheless, the tax is not without controversy, as many consider it unjust and harmful to the entertainment industry.
What do the critics of the tax say?
Some critics argue that the tax will further increase the already high cost of living for the Egyptian population and discourage them from enjoying proper recreation. A closer look reveals that tourism is a very large sector that will be affected by the new tax. It is therefore to be expected that a large proportion of the tax revenue from abroad will flow into the coffers of the Egyptian state, although Egyptians will of course still be affected by it in their normal everyday lives.
Others fear that the tax will reduce the demand for cultural and sporting events and thus affect the income of artists, sportsmen and organisers.
Moreover, they doubt that the tax revenues are actually used for the announced purposes and do not seep away into corruption or waste.
What impact could the tax have?
Entertainment taxes can serve as instruments to finance public expenditure, to promote culture or to guide consumer behaviour. In some areas, such taxes are probably quite reasonable and sustainable.
But they can also have negative effects on demand, supply or the quality of activities offered. Let’s take a look at what the additional tax could mean for diving.
The tax affects all snorkelling and diving providers. Whether in Hurghada, Sharm El-Sheikh, Dahab or Marsa Alam, there are numerous dive centres everywhere that offer diving courses, day trips or diving safaris. The new entertainment tax could have negative effects on the diving industry. On the one hand, it could increase the price of diving and thus reduce demand from divers. Secondly, it could affect the quality of diving services if diving providers try to cut costs or avoid taxes. It could also harm the environment if dive operators pay less attention to reef protection or allow more guests per boat or guide. The new entertainment tax could therefore not only reduce the revenues of dive operators, but also jeopardise their reputation and attractiveness as a diving destination.
What effect can the tax have on prices?
tauchernet.de has published a short article with a sample calculation (in German language). There is all sorts of information and even more speculation on the net and social media at the moment. And here is our speculation about it:
Lagona Divers has been active in Egypt since 1994. We know a lot of our professional colleagues, but also the dark side of the industry. The state is currently trying to weed out the black sheep through strict regulations and controls. In fact, however, it mostly hits “our part” of the industry, namely those who comply with these regulations – regardless of whether we think they are useful, helpful or unnecessary. All these controls cost a lot more money now than we used to have to spend.
At the same time, diving prices have by no means developed in the same way as costs. An example: In 2002, when the euro was introduced, 10 dives including trips cost 189 euros (incl. 5% sales tax). Today we are at roundabout 345 euros (incl. 14% VAT). Admittedly, an increase of 80% in 21 years – but calculated differently, just an increase of approx. 2.9% per year. The current inflation for the year 2022 is given as 13.9% for Egypt. Mind you, in one year.
On the page www.laenderdaten.info there is an inflation calculator based on historical inflation rates, which says that the price increase in Egypt since 2002 is 687.89% . Oh, just to mention in passing: for my favourite pizza at my Italian restaurant around the corner, I was still paying only DM 8.50 (4.34 euros) at the end of 2001. Today I get the same pizza in the “low-price” to go offer for 13.50 euros. Apparently, cheese and ham have become 300% more expensive in Germany since then?
This calculation perhaps shows that the diving industry, but not only the diving industry, has been confronted with exorbitantly rising costs for years. On the other hand, not even a small percentage of these costs could be added to their own prices.
What does this tax change for me as a holiday diver?
We cannot yet foresee the actual effects of this 10% additional levy. Reasonably operating dive centres will have no choice but to add this 10% to the existing prices. This will also have to be the case at Lagona Divers.
Which brings us back to the black sheep. Those providers who already, let’s say, “use all optimisation methods”, i.e. who, for example, at least partially avoid taxes, duties and various regulations, will surely find a way to save this 10% as well. Sure, using the friendly but currently unlicensed neighbour of the neighbour as a guide is certainly cheaper than the certified and insured diving instructor. Regular maintenance of the equipment is also often completely overdone. And in the case of the compressor, you don’t even see it if it hasn’t been serviced in the last few years.
Sarcasm aside: Watch even more carefully who you trust with your life or that of your buddy or even your family when in doubt. A proper, legal dive can never be had for the price of a pizza margarita. Think about that next time you plan your dive holiday.
What do we think of this tax?
In principle, we are not happy about any tax – and certainly not about an additional one. But: Egypt is still a poor country with suboptimal living conditions for a large number of its inhabitants. Maybe it will help a little if we have to pay 10% more for our pleasure. If the tax arrives where it is planned for, then maybe that is not all a bad thing.
In any case, we will observe this – as best we can – in the coming years.