Wednesday, 3 July 2019

FinMin, EGX to restore the old capital gains tax regime

EXCLUSIVE- Gov’t to restore the old capital gains tax regime under its latest proposal: A government committee looking to amend the capital gains tax (CGT) is proposing to restore the old tax rate of 10% on gains from the sale of shares in both EGX-listed and non-listed companies, a number of government officials we spoke with told us on Monday.

Stamp tax for non-residents only: The new proposal will also see the stamp tax on stock market transactions eliminated for residents in Egypt. A stamp tax will remain in place for non-residents, but will be lowered to 0.1% from 0.15%. Investors who have lived in Egypt for 182 days or more will be considered residents. Officials tell us that the proposal would abide by dual-taxation agreements signed.

Proposal is with the Madbouly Cabinet: The proposed changes to the tax will be sent to the Cabinet for review before being introduced to the House of Representatives in its next legislative cycle, which begins in October, the officials added.

Where do we stand today? Right now, anyone making a gain on the sale of shares in a privately held company is taxed at 22.5%. The levy on gains made trading in shares of EGX-listed companies stands at 10% on the books, but has been “suspended” until May 2020.

This sounds eerily familiar: Representatives in the House Economics Committee had been planning to move forward last month with a separate plan to unify capital gains tax, which could see both listed and non-listed companies face a 10% tax. The plan was proposed at a time when the government was still unclear on how it would restore the tax. The Tax Authority had said at the time that it would not back the move. The plan is currently still with the committee and is expected to be debated when the House reconvenes.

Background: After a revolt by retail investors, officials shelved the old tax proposal in 2017 for a three-year period — and replaced the measure with a provisional stamp tax. The full introduction of the tax was a recommendation of the IMF, and reports in the local press citing unnamed government sources had suggested in May that the government would not be bringing back the tax “anytime soon” despite deciding to keep the stamp tax on EGX trades unchanged at 0.15% this year.

Corrected on 11 July 2019 – Removed details on the dividends withholding tax, which we incorrectly said was part of the capital gains tax 

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