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Tuesday, 8 January 2019

Income Tax Act amendments to equalize capital gains tax imposed on corporates

LEGISLATION WATCH- Income Tax Act amendments to impose 10% capital gains tax on all corporates: Proposed amendments to the Income Tax Act would impose an across-the-board 10% capital gains tax on listed and privately held companies alike, House Planning and Budgeting Committee Chair Yasser Omar said. As it currently stands, the law imposes a 22.5% capital gains tax on unlisted companies, while listed corporations are subjected to a 10% tax. However, the levy for listed companies is currently on hold until 2020, after the Mehleb government backtracked in 2015 on plans to impose the tax from retail investors. The amendments to the Income Tax Act — which the committee is expected to begin discussing sometime this week with Finance Ministry officials — would essentially level the playing field between listed and privately held companies.

Amendments could be well-received: The move would likely spur M&A activity by reducing the cost of these transactions for privately held companies, Shalakany Law Office Senior Partner Emad El Shalakany said. The Egyptian Capital Markets Association (ECMA) had also said back in June that it may be receptive to scrapping the current stamp tax on EGX trades and instead implementing the capital gains tax. The lobby group said at the time it would push for a new framework for the tax that would address the issues which made the initial implementation of the tax “unbearable” to investors.

Background: The proposed amendments to the Income Tax Act, which were approved in principle in November, would also affect how corporations’ income from holdings of government debt is taxed, Finance Minister Mohamed Maait said last month. The amendments could also see some banks looking at a double-digit increase in effective tax rate. Banks would be required to split their books, separately accounting for income earned from holdings of government debt. The new, higher effective tax rate will be a result of the aforementioned splits — which will widen the bank’s taxable income — despite no change in income tax rates.

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