EXCLUSIVE- Gov’t to set cost-to-income ratio at 70% under new bank tax treatment of investments in treasuries, plans to scrap annual increase: The Finance Ministry is planning to amend the way banks will calculate their cost-to-income ratio for their holdings of government debt under the new tax treatment. The move will see the cost-to-income ratio capped at 70%, a senior government official tells Enterprise. Under this new calculation, the ministry will no longer introduce an annual increase to the ratio that would have seen it calculated on 100% of revenues in 2022. The ministry is currently finishing the executive regulations of the new tax treatment, which have effect retroactive to 10 February 2019. Banks will be required to make their first payments under the tax treatment on 10 May.

Background: The measure will require banks and companies to separately account for earnings from their holdings of government debt and could see their effective tax rates rise. The measure will apply only to gains on debt bought after the treatment comes into effect. A source had previously told us that the ministry had reached an agreement with the Federation of Egyptian Banks (FEB) that would see the ratio capped at 50% and allow these expenses to be counted as deductible against pre-tax income on the income statement.