EGX investors could be in line for a fresh capital gains tax break: Proposed amendments to the Income Tax Act have been pulled from the House while policymakers consider amending capital gains tax (CGT) rules in response to the current exchange-rate volatility, two government sources told Enterprise. Under the proposal, CGT on gains from stock trades made by resident investors in fiscal year 2022 would not be due until after the new tax legislation is passed. Policymakers are still mulling additional changes to how the CGT may be implemented, including timing.

The thinking: Keep the EGX attractive. Policymakers are considering setting aside the tax to mitigate the negative impact of the EGP’s devaluation on local investors. Their thinking: Local investors have been at a disadvantage (in EGP buying power terms) compared with foreign investors who were able to take larger positions for less (in USD terms). The currency has fallen sharply against the greenback over the past year on the back of global headwinds and a local FX shortage.

This has institutional backing: Among those pushing for the tax break are the Egyptian Stock Exchange, the Financial Regulatory Authority, and several undisclosed financial institutions.

There are no plans to scrap the tax entirely: The government isn’t planning on reversing its decision to re-introduce the capital gains tax, but policymakers are working on a new package of incentives to drive foreign investment in the market, one source said.

This isn’t the first time we’ve seen CGT breaks since its reintroduction: The Madbouly government in March slashed the capital gains tax on gains made from IPOs on the EGX by 50% for a two-year period and created a tax exemption for share-swaps between listed and unlisted companies, as part of an EGP 130 bn stimulus package that followed the March devaluation.

More tax incentives to come: The state is looking into introducing more incentives to draw investments in securities and investment funds, taking into account exchange rate changes and interest levels.

The current rules: A 10% capital gains tax on EGX transactions was reintroduced last January for resident investors (foreign investors in the bourse are exempt). Investors pay the tax on net portfolio earnings calculated at the end of the tax year, minus brokerage fees. Policymakers first said they were going ahead with a CGT in 2015, delayed, then set it aside in favour of a 0.125% stamp tax in 2017 and shelved the CGT for a three-year period. They then put on hold again until the start of last year thanks to the pandemic.

LOOKING AHEAD- We are bracing for more tax changes in the coming weeks: The Madbouly government is set to unveil its tax policy document in the coming few weeks.

The EGX has been on a tear on the back of the devaluation: The benchmark EGX30 index has risen 11.4% since the start of the year; it was up nearly 20% at the start of last week being hit by a wave of profit-taking. The index has almost doubled since falling to six-year lows last June.