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Tuesday, 2 October 2018

The Fourth Legislative Session of the House of Representatives

Welcome to Enterprise One: Legislation Watch, which calls on a tracker we maintain behind the scenes to keep tabs on dozens of pieces of regulation and legislation, from bills on the drawing board to long-awaited executive regulations. The goal: To give you a seven-minute overview of what you can expect out of the House this fall. Our tracker also follows pending regulatory changes and a bunch of other issues, all of which will be available only to our partners who join the Enterprise One program.

This is the House of Reps’ so-called “fourth session” — with the 2018-19 legislative calendar marking the fourth time the House has convened since its election.

THE ECONOMY

Shoring-up the revenue base: The Finance Ministry has moved aggressively since the Madbouly Cabinet was formed to amend a number key laws that impact the tax code, real estate tax, customs and SMEs — key drivers of revenue for the treasury both current (the first three) and future (small businesses). Plenty of this is still in the drafting stage, suggesting we’re looking at a busy year ahead for legislators. Other pieces, including the Banking Act and the Trade Ministry’s automotive directive appear stalled (to outsiders), but could roar back to life at any moment.

The easy stuff is done. Floating the EGP, passing an overhauled investment act, the new bankruptcy act — we’re getting down to brass tacks this session as the government looks to build out a supporting framework for what the Sisi administration calls “the reform agenda.”

Among the highlights:

** Changes to the tax code: Amendments to the tax code will focus on procedures and the slashing of red tape — Finance Minister Mohamed Maait has given no sign that he is backing away the policy of tax-rate stability put in place by Amr El Garhy, the well-regarded finance minister under whom Maait served in the Ismail cabinet. The amendments aim to restructure the Tax Authority and make it fundamentally more customer-centric, Finance Minister Mohamed Maait had said. He had also said that the new policies means to curb tax evasion and corruption through improved transparency and accountability. It will also regulate electronic tax payments, which went into effect this week for companies and which become the law for individuals in 2020.

Taxing e-commerce: The ministry has also developed a tax framework for e-commerce, which it plans to introduce as part of the Income Tax Act, Assistant to the Finance Minister Mohamed Abdel Sattar confirmed in conversation with us earlier this week.

Status: Changes to the tax code are on the fast-track for debate in the House in this legislative cycle. The bill was sent to President Abdel Fattah El Sisi earlier this month for his signoff.

** Real Estate Tax Act: The Madbouly Cabinet is looking to overhaul the tax code’s provisions on the real estate tax by devising new formulas that were initially meant to impact businesses and private properties. The ministries of oil and tourism recently signed agreements with the Finance Ministry on the calculation of real estate taxes for their respective sectors as part of a broader overhaul of the real estate tax formula, which met with backlash — prompting President Abdel Fattah El Sisi to step in and order that no changes be made to the tax treatment of land on which factories and hotels currently stand. The Finance Ministry is, in parallel, stepping-up enforcement as it looks to collect real estate taxes owed by owners of properties used for billboards and mobile-phone towers.

Competing legislation from the House: Unhappy with the proposed changes, some MPs have drafted rival legislation under a new name: The Returns Act. The legislation would impose taxes on real estate based on size and location and would apply to commercial and residential properties alike. The annual tax would be added to electricity bills once a year; its backers estimate it would reel in around EGP 17 bn per annum

Status: The amendments, which became publicly unpopular over the past couple of months, appear to still be in the drafting phase as the ministry looks to see how much it can push. We anticipate much jockeying between MPs and cabinet as they look to reconcile dueling bills. The one thing on which there appears (for now) to be consensus: Nobody is (yet) talking about taxing occupied, primary family dwellings.

** Customs Act: The Finance Ministry is planning to introduce a new and more comprehensive Customs Act during the current legislative session. Sources had told us previously that the new legislation includes a host of measures that would facilitate the flow of goods through Egypt’s ports, including establishing a “white list” of importers who will benefit from expedited clearance of goods.

Status: The law appears to be in its “national dialogue” phase (Egyptian press-speak for “public consultations”) with the House of Representatives having recently received input from business associations, including the Egyptian Businessmen’s Association (EBA) and the Federation of Egyptian Industries.

** The SMEs Act: As the keystone legislation in the state’s drive to bring the informal economy into the fold, the SMEs Act sets out incentives for owners of micro-, small- and medium-sized enterprises to go legit— effectively services and (subsidized) access to finance in return for paying taxes. Assistant to the Finance Minister Mohamed Abdel Sattar told us yesterday that the law would impose a 1% flat income tax on all SMEs (with the ministry using the CBE’s definition). There was even talk of granting them VAT exemptions. The ministry is also hoping to block SMEs that do not register from receiving basic government services unless they register.

Status: Last we heard, the ministry was conducting a final review of the SMEs Act before sending it to the Madbouly Cabinet for review. The ministry hopes to introduce the act before the end of the year.

** Insurance Act: The law would make the Financial Regulatory Authority (FRA) the primary regulator for the sector, governing everything from the licensing of insurance companies, to setting best practices and industry standards, and regulating transactions, contracts, and policies. Compulsory insurance for SMEs is expected to be a key component of the new act, which is also expected to regulate insurance for freelance and seasonal jobs. It is also expected to make insurance cover mandatory for public gatherings and venues (such as malls and concerts).

Status: The board of the FRA is supposed to be currently reviewing the final draft of the act, which will then be put up for “national dialogue” in October and amended to reflect the views of various industry stakeholders. A final draft will then be presented to the Madbouly Cabinet in December.

ALSO IN THE PIPELINE and expected to be introduced in the House this session:

  • E-payments Act: The CBE-quarterbacked bill is a pre-requisite for enacting the finance ministry’s nationwide billing and payments systems.
  • A resurrected wealth tax? Prior to the summer recess, a number of House MPs said they would push an amendment to the tax code that would create a wealth tax. Others have argued in favor not of a classical wealth tax, but of bumping up the maximum tax rate for the top income earners. Expect a tussle with the government, which has said it does not plan to change tax rates this year.
  • Public Enterprises Act: The Public Enterprises Ministry has finished drafting amendments to the Public Enterprises Act that would allow private-sector companies to own stakes of just under 50% in the ministry’s holding companies. The draft amendments have been sent to the Madbouly Cabinet.
  • Unified Tourism Act: A new comprehensive law that would govern the tourism sector, which will include regulations on licensing, oversight, and quality control. The law is expected to be introduced this legislative session.
  • Unified Building Codes: The law, which is currently before by the House Housing Committee, focuses on facilitating the process of issuing building permits by cutting down the time for obtaining a license to 30 days and allowing some engineering consultancy offices to issue them. It also tightens safety codes.
  • Public Finances Act: The law would impact how the budget is drafted. That is all we know of the law, except that the Finance Ministry plans to introduce it in the current legislative session.

In limbo: There are a number of laws out there currently languishing in legislative limbo, and we have no clue whether these important laws will see the light of day this legislative cycle:

Banking Act: The law, which grants the CBE greater oversight of the banking sector and strengthens corporate governance regulations, will reportedly only make its way to the Madbouly Cabinet for review some time in 4Q2018. A leaked draft of the bill was very controversial within the banking community, proposing as it did both (a) a tithe on bank profits for a government-run industry development fund and (b) term limits for bank managing directors. The central bank has since walked back the notion of a tithe on profits.

Automotive directive: Car assemblers hoped that this law, which initially was supposed to grant incentives to assemblers to move up the value chain to manufacturing, would be ready before customs on imported EU-vehicles fell to zero on 1 January 2019. With the review of the act — which drastically changes the incentives structure — it still unclear when this will be ready. Minister Amr Nassar promised that the law would be ready for the House in October.

Antitrust act: The Egyptian Competition Authority is looking to expand its powers under amendments to this act, which will include oversight and approval on mergers and acquisitions worth more than EGP 100 mn. It is still unknown where the law stands.

Labor Act: This law had been one of the most difficult to get passed, and had been moldering with the House of Representatives since last year. The law, which establish specialized courts to deal with labor-related cases, is currently being reviewed by the House Labor Committee with an eye to introducing amendments which would impact maternity leave and working hours for women.

Water Act: The law would regulate how water is distributed and who has the right to use it, as well as set new penalties for wasting it and new regulations for Egypt’s sewage systems.

SOCIAL / POLITICAL STUFF

** Local Administration Act: The long-awaited law would set the stage for local council and municipal elections in Egypt. The law also stipulates that governors and their deputies resign from their posts at the beginning of a new presidential term. The law, which in theory aims to devolve power to local governments and organize district elections, has faced delays at nearly every step of the way. Government-appointed officials have been running local affairs since a court dissolved municipal councils in 2011. Municipal elections were last held in 2008. Former House majority leader Mohamed Elsewedy had previously said the act would take 3-5 years to implement once passed, while Parliamentary spokesperson Salah Hassaballah had said that the elections would likely be held in 1H2019.

Status: The Local Administration Act will be a top priority for the House of Representatives during its fourth legislative session, Hassaballah said in August. The legislation is pending national dialogue before being put to a vote in parliament, he added.

** Social Welfare Act: The Finance Ministry has communicated very little to the public about this bill except to say that it will be introduced in the current legislative cycle. We had also heard that the law will amend the social welfare and pensions systems, guarantee the right to unemployment benefits, and establish a new pension fund.

Status: The law was with the ministry for review as of last June.

** Criminal Procedures Act: The law would introduce new avenues of mediation outside the court system, including for murder cases; enforce new regulations for pretrial detention; regulate no-fly and airport arrival watch lists; and address witness protection, among other issues.

Status: The law is among the House’s top priorities in the fourth legislative session, according to the House spokesperson. It had been introduced to the House General Assembly prior to the summer recess, but a vote was not taken place.

** Family Planning Act: The House Health Committee-drafted law would set incentives for those willing to cap their reproduction at two children. The law would not work in the vein of China’s two-child policy, as it would not punish families with more than two children. The law already has support from some 60 House representatives, Committee Chair Mohamed El Emary had said in August.

Status: El Emary said the law would be voted on this session, with parliamentary hearings and a national dialogue coming prior to the vote.

** Data Protection Act: Under the 51-article bill, only companies with permits to share user data will be allowed to do so, with the condition being that they obtain users’ prior approval. The law will also allow users the right to take legal action against data breaches and misuse of private information. It will also set fines of up to EGP 5 mn for violations as well as prison sentences of up to three months, based on the severity of the crime. The Information Technology Industry Development Agency (ITIDA) will be the sole authority responsible for implementing the new law.

Status: The bill is expected to be introduced in the opening months of the legislative session, according to Mohamed Hegazy, the head of the ICT Ministry’s legislative committee.

** Personal status act: The government introduced amendments to the law during the third legislative cycle that cover matters of marriage, death, inheritance, and child custody.

Status: The legislative committee at the House had approved the government’s amendments, and it is expected to be deliberated in the general assembly this month.

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