The law to levy a new 10 per cent capital gains tax will be referred today to the State Council.
The Finance Ministry will refer a new law that will impose a 10 per cent capital gains tax (CGT) on profits made by investors in the stock market to the State Council for revision before its ratification by the president, Mesbah Kotb, advisor to the finance minister, said.
Kotb told TNN that the new tax will achieve “social justice” and aims at expanding the tax base. “Tax contribution to the GDP is very weak and does not exceed 15 per cent,” he said.
Egypt’s stocks tumbled on news of imposing a capital gains tax
Once news of the new tax was confirmed on Thursday, Egypt’s stocks dropped significantly, with the benchmark index EGX30 slipping 3.45 percent to register 8,242 points. The broader index EGX70 also dropped by 2.36 percent. Market captalization lost LE12.2 billion, marking its biggest loss in a single day since the beginning of 2014.
On Thursday, Finance Minister Hani Kadri said the government had approved the introduction of the tax in light of its income tax reforms which it expects to bring in LE10 billion. Kadri said the government will exempt bonus shares from the new tax. “Distributions of bonus shares will be exempt from the taxes,” Kadri told Reuters by phone late on Thursday.
Though the new law will impose a 10 per cent tax, it will cancel the currently imposed 0.001 transactions tax, levied in 2013 during former president Mohamed Morsi’s rule. Profits from the stock market are currently tax free, with Kadri saying the new tax will not be retroactive.
Egypt is scrambling to increase its revenues and rein in its fiscal deficit after three years of turmoil strained its economy. Reforming the tax system is one way for the government to increase its revenues.