CAIRO: Egypt will impose a 10 percent annual tax on stock market profits, cash dividends and bonus shares, which has elicited widespread criticism on grounds that it could reduce cash flow into the Egyptian stock exchange (EGX).
“The council of ministers agreed to impose a 10 percent tax on net capital gains that individuals make at the end of the tax year,” Minister of Finance Hany Kadry told Reuters Thursday.
The tax comes in light of income tax reforms that are expected to generate 10 billion EGP ($1.4 billion), added the minister.
Pioneers Holding Managing Director Mohsen Adel said any proposal to impose taxes on EGX profits will hurt its ability to lure new investments, which will have a negative impact on current liquidity.
“The shareholders will step back from reinvesting their money in the stock market,” Adel told The Cairo Post. “This will dramatically affect the revenues needed to maintain market stability and the exchange’s role as a key source of financing investments in Egypt.”
Ihab Saeed, head of technical analysis at Osool ESB Securities criticized the Ministry of Finance’s decision, and said the move “would hurt EGX competitiveness among the neighboring Gulf markets.”
He added the government needs significant tax system reforms to fulfill its goal of generating revenues to fill the growing budget deficit, which is projected to reach 14 percent of GDP in the coming fiscal year if the government doesn’t apply reform measures immediately.
However, Hany Tawfik, the head of the Egyptian Private Equity Association, backed the new tax and said, “Whoever makes money in this country should pay taxes in return, and the government should not hold back on investors anymore.”