LEGISLATION WATCH- Banks now know how they’ll calculate the cost of investment in treasuries under changes to the tax code: The Official Gazette published yesterday (pdf) two additions to the executive regulations of the Income Tax Act that outline some of the mechanics of the recently-changed accounting treatment for bank and corporate earnings from holdings of government debt. The new articles set an equation for how the “cost of investment” in treasuries is to be calculated. We have been told that the cost of investment will be tax-deductible under the treatment.

Why does it matter? The new treatment required said banks and companies to separately account for their earnings from their holdings of government debt, seeing their effective tax rates rise. Analysts initially said that the new mechanism will result in a c. 37% effective tax rate for a model bank. As a result, the Tax Authority began working with Egyptian banks to look at ways to ease the implementation after reaching an earlier compromise with the Federation of Egyptian Banks to apply the new treatment only on treasuries bought after the amendments were signed into law by President Abdel Fattah El Sisi.