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Sunday, 26 February 2017

Finance Ministry recommends stamp taxing each stock market buyer and seller 0.2% per transaction

The Finance Ministry will send draft legislation to the House of Representatives in early March that will create a 0.2% stamp tax on stock market transactions, a Finance Ministry source told Reuters. The Both buyers and sellers will pay the tax on each transaction, making the effective rate on any given transaction 0.4%, split between both parties. The source says the Ministry is to begin applying the tax by May. He expects the stock market stamp tax to bring in EGP 1-1.5 bn in FY 2017-18, conditional on trading volumes. The source also hopes the House of Representatives will eventually raise the tax rate to 0.3%.

The rate proposed is below the 0.4-0.5% speculated by the market, Allen Sandeep, head of research at Naeem Brokerage, told Reuters, “so this is more of a relief for the market, which had been pricing in a much higher rate.” Sandeep says the 0.2% is an acceptable rate for an “emerging market like Egypt,” but he would have preferred the tax be deferred altogether given the “emphasis on attracting foreign capital.”

What will the stamp tax mean for the IPO pipeline in the first half of the year? That was the question Al Borsa asked a number of investment banks popular with retail investors. Some, including Prime Holdings CEO Mohamed Maher, believe that while the tax will have an effect, the success and failure of IPOs at drawing investments will primarily depend on how attractive the pricing of the companies will be. Pioneer Holdings’ head of brokerage Amer Abdel Kader takes the view that the stamp tax will have a negligible effect, as the EGP float has proven to be a major draw to investors that will be sustained after the tax is implemented. Others are not as optimistic, including Cairo Capital’s Ahmed Abou Hussein. AT Brokerage’s Mohamed Fattah Allah thinks that the tax would actually derail the IPOs of state-owned businesses.

Al Borsa expects six “major IPOs” in the first half of the year:

  • Banque du Caire, with EFG Hermes and HSBC managing the transaction;
  • Raya Holding (EFG Hermes);
  • MM Group for Industry and International Trade (Beltone Financial);
  • El Farasha for Printing and Packaging (Beltone Financial);
  • DBK Pharma, with Pioneer Holdings managing the listing;
  • Real estate developer Misr Italia, with Prime Holdings leading.

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