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Thursday, 28 February 2019

Details emerge on cost-to-income ratio under new banks tax treatment

EXCLUSIVE- Here’s how banks will have to calculate their cost-to-income ratio for income from treasuries under the new tax treatment: A draft agreement between the Federation of Egyptian Banks (FEB) and the Finance Ministry would see banks calculate their cost-to-income ratio for investment in government debt under the new tax treatment by dividing total bank expenses (excluding appropriations and depreciation) by total bank revenues and then multiplied by 80% of yield from government t-bills and t-bonds, according to a document seen by Enterprise. The cost-to-income ratio will be capped at 70% of revenue from government debt in 2019, 80% of revenues in 2020, 90% of revenues in 2021 and 100% of revenues in 2022, according to the document. No extra details on the calculation or the caps were provided.

We had reported yesterday that an agreement between the ministry and the FEB will see the cost-to-income ratio on income from holdings of treasuries capped at 50% (which, depending on how it is ultimately calculated, would be a less generous figure than above) and allow these expenses to be counted as deductible against pre-tax income on the income statement. Our source in government had also told us that this provision, as well as rules on the recognition and calculation of allowable costs, are expected to be in the executive regulations, which could be out “in a matter of days.” The Finance Ministry had previously agreed to mark the cost of investment in treasuries as deductible in the new tax treatment.

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