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Egypt approves capital gains tax, stock market plunges

Traders talk on the floor of the stock exchange in Cairo, May 29, 2014. (REUTERS/Amr Abdallah Dalsh)

CAIRO: Egyptian shares slumped the most globally after the government said it would tax investor profits a day after the presidential election concluded.

The benchmark EGX 30 Index declined 3.5 percent, the most in two months, to 8,242.94 at the close in Cairo. That made it the worst performer among over 90 gauges tracked by Bloomberg. Telecom Egypt, the country’s monopoly fixed-line phone firm, plunged 5.1 percent.

Egypt, which is struggling to cut the Middle East’s highest budget deficit, has approved the introduction of a 10 percent capital gains tax on profits made on the stock market, Egyptian Finance Minister Hany Kadry Dimian told Reuters Thursday.

The tax is part of the first phase of income tax reforms in the country expected to bring in 10 billion Egyptian pounds ($1.40 billion), Dimian said. He said the tax would not be retroactive and would be implemented once a law was issued.

“The cabinet agreed to impose a 10 percent tax on net capital gains that individuals make at the end of the tax year,” Dimian said. “A tax of 10 percent was also imposed on cash dividends and bonus shares.”

Profits from stock market transactions are currently tax-free.

Egypt has been voting this week to choose a new president. Abdel-Fattah al-Sisi, the general who toppled the country’s first freely elected leader following mass protests, has received more than 90 percent of the vote, according to provisional results.

The country is keen to encourage investment but also find additional sources of revenue after more than three years of economic and political turmoil since a popular uprising ousted Hosni Mubarak in 2011.

Growth expectations for this financial year are between 2 and 2.5 percent, the Finance Ministry said.

To help to encourage direct investment, there will be a reduction in the tax on cash dividends and bonus shares for those holding strategic investments of more than 25 percent in companies listed on the stock market, Dimian said.

“The percentage is decreased to 5 percent if the participation level is more than 25 percent, which would encourage direct investment,” Dimian said.

He said there would also be an exemption from the tax for parent or holding companies that received dividends from their affiliates if their stake was no less than 25 percent of the capital in those firms for at least two years.

Dimian said a 0.001 percent stamp tax on stock market transactions would be cancelled.

He also said the new tax would not have adverse effects on foreign investment. “With regard to foreign investors, there will be no change in their tax burdens because the tax they pay in Egypt will be discounted in their countries.”

 
A version of this article appeared in the print edition of The Daily Star on May 30, 2014, on page 5.

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Summary

Egyptian shares slumped the most globally after the government said it would tax investor profits a day after the presidential election concluded.

Egypt, which is struggling to cut the Middle East's highest budget deficit, has approved the introduction of a 10 percent capital gains tax on profits made on the stock market, Egyptian Finance Minister Hany Kadry Dimian told Reuters Thursday.

To help to encourage direct investment, there will be a reduction in the tax on cash dividends and bonus shares for those holding strategic investments of more than 25 percent in companies listed on the stock market, Dimian said.

Dimian said a 0.001 percent stamp tax on stock market transactions would be cancelled.


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