CAIRO, May 26 (Aswat Masriya) – Egypt's cabinet said it expects a 41 per cent increase in its sales tax revenue in FY 2016/2017 due to the introduction of the long-awaited value added tax (VAT).

Revenues are expected to reach EGP 172.3 billion in the fiscal year that starts in July due to the "financial impact of the transition to the VAT," the cabinet said in its report on the draft state budget that has been sent to the parliament.

The government had previously declared its goal to shift from the sales tax to the value added tax both in the current FY 2015/2016 and FY 2014/2015, which coincided with President Abdel Fattah al-Sisi's term.

Although President Sisi held legislative authority for a year and a half before the election of the parliament earlier this year, he did not issue the VAT bill.

The former finance minister Hany Kadri Damian previously said that the transition to the VAT will contribute to higher inflation rates ranging from 2-3.5 per cent.

The cabinet approved the VAT bill on May 16 and referred it to the State Council, an advisory body to the government, before sending it to parliament for discussion.

The VAT draft law is part of a government fiscal reform programme aimed at cutting energy subsidies and reducing a ballooning deficit by introducing new taxes.

The state's budget deficit rose to 7.9 per cent of the Gross Domestic Product (GDP) in the first eight months of FY 2015/2016, compared to 7.7 per cent of GDP during the same period last year, the ministry of finance said earlier this month.

The law is expected to replace the current sales tax and broaden the tax base by subjecting all services to the tax while maintaining the principle of exempting basic goods and services that affect the poor, according to a cabinet statement issued at the time of the law's approval.