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Wednesday, 6 June 2018

Slowly, slowly, policymakers look for ways to impose capital gains tax on stock market transactions

Someday, somehow, EGX trades could be subject to the capital gains tax: The Tax Authority is mulling the formation of a committee to look into how it could impost the long-deferred capital gains tax on stock market transactions, a government source tells Enterprise. The source noted that there is no rush afoot to implement the measure soon, adding that any such move would be a “political decision” (government-speak for Ittihadiya or the Prime Minister).

No change is imminent: The levy is on hold until 2020, having been delayed after protests by retail investors.

Background: The previous government backtracked in 2015 on plans to impose a tax on stock market gains after protests from retail investors, but threw business owners under the bus, leaving in place a tax in dividends.

The capital gains tax might have a receptive audience from financial markets after all: The Egyptian Capital Markets Association (ECMA) may be receptive to scrapping the current stamp tax on EGX trades and instead implementing the capital gains tax, Youm7 reports. Representatives of the lobby group plan to meet with the Finance Ministry to push for the proposal, said ECMA head Mohamed Maher. He said that they will push for a new framework for the capital gains tax that addresses the issues which made the initial implementation of tax “unbearable” to investors. Other members of the group wants to repeal the stamp tax, saying that by the time it reaches 0.175% it would be too high and could have a negative impact on daily trading volumes.

The stamp tax on stock market transactions earned the government a total of EGP 3.2 bn in its first year, widely exceeding expectations, a source in government tells us. Misr For Central Clearing, Depository & Registry Managing Director Tarek Abdel Bary told us earlier this week that the 0.125% tax on the main market had brought in EGP 700 mn, which leaves the wider OTC covering the remainder. The tax generated exceeded the government’s projection of EGP 2.1 bn in its first year. The tax was raised to 0.15% earlier this week and will rise to 0.175% next year.

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