FinMin to work with Egypt’s banks on mitigating the impact of the new tax treatment
EXCLUSIVE- Tax officials spreading oil on troubled waters after flap over tax treatment of bank holdings of gov’t debt: Tax officials are actively working to smooth feathers ruffled by a proposed change to how bank income from investments in government debt is taxed. Multiple sources in the tax apparatus, including Abdel Azim Hussein (who spoke with us this week in his capacity as head of the Tax Authority’s stamp tax arm, but who is now the incoming head of the authority as a whole), told us that officials are looking at ways to ease the implementation of the new treatment as well as ways to expedite resolution of tax disputes. The Finance Ministry has also been holding meetings with banks to resolve as many as 1,400 tax disputes, other sources told Enterprise. This comes as banks have been disclosing the impact of the new tax treatment on their financial results.
Where do we stand currently with the new tax treatment legislation? The proposed text of the amendment has made its way to the central bank for review. After the CBE signs off, it will head to the House of Representatives for debate, a ministry source told us.
Background: The Madbouly Cabinet approved last month amendments to the Income Tax Act which will require banks to split their books, separately accounting for income earned from holdings of government debt. Analysts initially said that the new accounting mechanism will result in a c. 37% effective tax rate for a model bank, compared to a current 24%. Finance Minister Mohamed Maait had said the move brings the sector’s tax treatment in line with international standards and “ensures tax equality with regards to financial institutions investment in government securities.” The system will take effect after the amendments pass the House, but will only apply to income from investments in gov’t paper from that day forward.
In related news, taxes on holdings of treasury bills and bonds rose to EGP 11.9 bn in the first quarter of FY2018-2019 (July to September) from EGP 9.2 bn in the same quarter last year, a 29% rise, according to a Finance Ministry report (pdf).