EXCLUSIVE- A leading industry association is pushing for capital gains tax exemptions for stock market investors, according to proposals by the Egyptian Capital Markets Association (ECMA) seen by Enterprise. The ECMA is lobbying for both Egyptian and resident foreign investors to be exempted from capital gains taxes through May 2023, suggesting that the Finance Ministry postpone the introduction of the tax for another three years as part of a package of measures designed to attract investment and boost trading.

What is the ECMA proposing for capital gains? Egyptians and foreign residents would not become liable for capital gains tax until 1 May 2023, with the first period for the calculation of taxes due falling to tax season in April the following year. The starting point for the calculation of gains would be either price paid for the share or the share’s closing price on the day the law comes into effect, whichever is higher.

ECMA is recommending that foreign investors — as we heard last year — would be fully exempt from the capital gains tax. ECMA’s proposals would see foreign investors pay a reduced 0.1% stamp tax instead of 0.15% currently. Egyptians would be exempt entirely. Intraday transactions would also not be charged stamp tax.

Tax on dividends would be cut in half: A flat tax rate of 5% would be introduced on dividend income for both resident and non-resident shareholders, regardless of how much of the company they own. Shareholders currently pay a 10% withholding tax on dividend income, lowering to 5% for shareholders holding 25% or more of a company’s shares. If this applies equally to public and private companies, the community should cheer the proposal.

Background: A committee made up of the ministry, the Egyptian Tax Authority and the Egyptian Capital Market Association has been meeting for weeks to discuss the tax on stock market transactions. The ministry has also been closing in on finalizing draft amendments that will settle whether the capital gains tax will be making a comeback, after being shelved for three years in 2017 in favor of a provisional stamp tax.

Where’s this coming from? The proposals are likely the product of a meeting held last month between ECMA, the Federation of Egyptian Chambers of Commerce’s (FEDCOC) securities division and key stakeholders in the capital markets. Local press reported following the meeting that FEDCOC had invited capital market representatives to meet with the House Economic Committee within 45 days to discuss tax on stock market transactions.

The Finance Ministry is treading slowly given the impact of covid-19 on global markets. We had expected to hear something from the ministry last week after Minister Mohamed Maait said that he would publicise its EGX tax plans at the end of February. Government sources then told the press that the current turmoil in the markets may force the government to delay its plans.