CAIRO – Egypt’s government on Monday suspended a tax imposed on the market’s capital gains for two years, causing shares to rise in early trading.
The positive reaction came after a months-long downturn when investors had complained of a lack of clarity about the new taxes and how they would be collected. Some investors had gone to court to abolish the government’s law.
President Abdel-Fattah el-Sissi approved the law nearly a year ago, which put a 10 per cent tax on capital gains that fueled a sell-off by investors.
The law had been part of a broader government effort to broaden the country’s tax base as it pushed through a host of tough measures including slashing fuel subsidies, amending the property tax law, imposing a 10 per cent tax on stock dividends and allowing the Egyptian pound to devalue somewhat against the dollar.
The suspension of the tax “more or less reflects the difficulty of manoeuvring through structural reforms,” said Mohammed Abu Basha, an economist at regional investment giant EFG Hermes. “They had a huge list of things they need to do to fix the economy.”
Egypt’s economy has been battered amid turmoil and instability in the country since after the 2011 popular uprising that ousted former autocrat Hosni Mubarak.
Foreign investment dried up — from a high of $13 billion in 2007-2008, it plunged to $2.2 billion after the uprising. Tourists, one of the country’s main sources of revenue, fled while growth rates fell from more than 7 per cent before the uprising to around 2 per cent after Mubarak’s ouster.
Now, the government is trying to send the message that it’s open for business.
It hosted an international investment conference in March that saw billions pledged to boost the economy. El-Sissi has launched a series of ambitious mega-projects, including announcing plans to build an entirely new capital city to relieve congestion in Cairo and developing industrial zones around the Suez Canal.
Cabinet spokesman Hossam el-Qaweish said Monday’s decision was aimed at preserving the “competitiveness of the Egyptian financial market.” He said the measure is part of the ongoing efforts to achieve economic reforms while taking into consideration impact of such measures on the general investment atmosphere.
The government took nearly 10 months after passing the capital gains tax last year to issue executive regulations explaining how the tax would be collected, a delay that caused uncertainty in the market. At the time the law was passed, experts said the tax was hardly explained to investors.
Traders at Egypt’s stock market Monday were optimistic about the impact of the tax suspension.
“What’s expected after suspending the tax, is the market will strongly rally. Investors who were getting out of the market will come back,” said trader Heba Raafat.
Immediately after the announcement of the suspension, Egypt’s EGX 30 index rose 3.3 per cent to 8562.07 according to Egypt’s official news agency. By midday, shares jumped more than 6 per cent.