CAIRO: Cabinet decided to amend a tax on stock market profits after the Egyptian Exchange (EGX) plunge since the tax was announced last week, recording its biggest daily loss in almost a year on Sunday.
EGX ended Sunday’s session on a sharp decline after reducing early losses, triggered by the Cabinet’s decision to mull a capital gains tax on stock market profits and dividends. Market capitalization lost more than 16 billion EGP.
The benchmark index EGX30 fell 4.22 percent to close at 7,894 points. The EGX management decided to suspend Sunday trading for half an hour after the index plummeted 5.72 percent to 7,771 points in early trading. The small and mid-cap index EGX70 dropped 4.88 percent to hit 560 points and the broader EGX100 dropped 4.42 percent to 985 points.
The Cabinet’s Economic Group headed by Prime Minister Ibrahim Mahlab, met late Sunday to discuss the recent amendments to the law on capital gains tax.
“The meeting reached a number of amendments, first of which is the bonus shares will not be taxable with no need for time-limit minimum to retain investor. Secondly, the amendment that the tax on dividends will be for a minimum value of distributions of 15 thousand EGP,” EGX chairman Mohammed Omran said in a Monday statement.
Governor of the Central Bank of Egypt (CBE), Minister of Trade, Industry, and Investment, Minister of Finance, Head of the Egyptian Financial Supervisory Authority (EFSA), and EGX chairman attended the meeting.
Omran said that EGX management will continue to work on maintaining the attractiveness of the market through the diversification of financial instruments to investors while still working on the creation of new catalysts.
During the meeting, participants reiterated the importance of capital market and its important role in the mobilization to help companies get financing, the Cabinet announced in a Sunday statement. “The government on its part has always supported the existence of an efficient capital market, which can play a pivotal role in the economic development process,” according to the statement.
“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 Cabinet received widespread criticism on grounds that the tax could reduce cash flow into the Egyptian stock market. Meanwhile, the government said the tax comes in light of income tax reforms that are expected to generate 10 billion EGP ($1.4 billion).
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.”
Head of the Egyptian Private Equity Association Hany Tawfik backed the new tax and said that “whoever makes money in this country should pay taxes in return and the government should not hold back on investors anymore.”