Gov’t cuts EGX taxes, energy prices to support businesses through covid-19 outbreak
Gov’t cuts EGX taxes, energy prices to support businesses through covid-19 outbreak: The government has announced a package of fiscal measures to help support the economy and financial markets as it braces against the impact of the covid-19 outbreak. Industrial companies will receive relief in the form of lower energy and tax costs, and equity investors will be granted generous breaks to taxes on dividend and stamp duty.
Taxes on EGX transactions slashed to support equity investors: The government has moved to sharply cut the tax burden on EGX investors in a bid to shore up demand in the equity markets, which have fallen precipitously in the wake of the virus outbreak. The moves include:
- Stamp tax cuts: Foreign investors will pay stamp tax on EGX transactions at a reduced rate of 0.125%, instead of 0.15%. Residents will pay just 0.05% stamp tax, down from 0.15%. All spot transactions on the EGX will also be made exempt from stamp tax.
- Capital gains tax postponed for two years: Capital gains tax on EGX transactions will be reintroduced on 1 January 2022, and foreign investors will be made permanently exempt.
- Tax on dividends cut in half: Investors will now pay a withholding tax of 5% on dividend payouts from listed companies, down from 10% previously.
Real estate tax relief: Companies operating in the industrial and tourism sectors will receive a three-month real estate tax holiday and will be permitted to repay existing real estate tax liabilities in monthly installments over the next six months.
Lower energy costs for factories: The government has lowered the price of natural gas for the entire industrial sector to USD 4.50 / mmBtu. This will mean a 25% price cut for cement companies which were paying USD 6.00 / mmBtu, and an 18% cut for metallurgy and ceramic manufacturers which were paying USD 5.50 / mmBtu. The price of electricity per kWh was also lowered by 10 piasters for medium, high and ultra-high voltages, and will be frozen for the next 3-5 years. Government sources said the electricity price cuts could cost around EGP 6 bn alone.
Government to pay out EGP 1 bn in arrears by the end of April: The Export Subsidy Fund will pay out the entire EGP 1 bn in arrears during March and April and the 10% in cash payments during June. The fund began paying out the arrears at the beginning of this month.
Legislation on the fast track: The government and the House of Representatives will work to fast-track the SMEs Act and the amendments to the Real Estate Tax Act, as well as the auto incentives strategy. The House SMEs committee is currently expected to finish its review of the SMEs Act this month, and the real estate tax amendments were approved by the cabinet in January. The cabinet last week greenlit the auto strategy although we remain none the wiser about what it entails.
The business community broadly welcomed the measures, but industry associations and other lobby groups are asking for more.
Lower gas prices to boost exports? Mohamed Saad El Din, chairman of the Gas Investors Association, said the decision to cut gas prices will increase the competitiveness of Egyptian products and increase exports. Other industry association figures said the price cuts, while welcome, were a necessity even in the absence of covid-19. Hassan El Marakby, chairman of El Marakby Steel, said prices need ot hit USD 2.50-3.00 / mmBtu if companies are to withstand the crisis.
Industry associations want the government to permanently scrap real estate taxes for factories. Mohamed Khamis Shaaban, head of the Sixth of October Investors Association, said the announcement was “not encouraging” and urged the government to abolish the tax for factories. Magd El Manzalawi, head of the industry committee at the Egyptian Businessmen’s Association, also called for its removal.
Companies in the tourism sector have welcomed the temporary real estate tax suspension and are lobbying for a VAT holiday. Elhamy El Zayat, former president of the Federation of Egyptian Chambers of Commerce, said the state should consider bringing back its industry support fund to provide liquidity to struggling companies.
Exporters want more than just subsidy arrears: Former Export Council for Agricultural Crops head Sherif El Beltagy says payment of arrears by its will not help exporters overcome headwinds that include spiraling shipping costs.