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Sunday, 12 July 2020

Egypt's parliament to discuss amendments to laws on banking, public enterprise companies and taxes

Parliament will hold meetings on Sunday and Monday to discuss a new batch of economic and financial laws

Gamal Essam El-Din , Saturday 16 May 2020
A file photo of Egypt
A file photo of Egypt's Parliament (Photo: Reuters)
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Egypt's House of Representatives will meet on Sunday to continue discussions on a 294-article law regulating the performance of the Central Bank of Egypt (CBE) and the banking sector.

The law, which was being prepared since 2017, was approved in principle on 4 May when MPs also discussed and approved 51 of its articles.

The law is expected to be up for a final vote on Sunday or Monday.

According to a report prepared by parliament’s Economic Affairs Committee, the law aims to reinforce the supervisory powers of the CBE in terms of raising its capital to EGP 20 billion to help it exercise its financial obligations.

The law also tackles the CBE’s roles in licensing foreign banks and representation offices in Egypt.

It stipulates that banks operating in Egypt should have capital of at least EGP 5 billion and branches should have capital of at least $150 million.

The law creates a new system for settling the conditions for defaulting banks, with the objective of maintaining the stability of the banking sector and protecting the interests and money of depositors, the report said.

CBE Governor Tarek Amer told MPs on 4 May that the long-awaited law is intended to catch up with the latest developments in the banking sector and operations and services such as e-payments, fintech businesses, and cryptocurrencies.

“The introduction of these new services has become necessary to be able to effectively cover all areas of credit, finance, and money transfers,” Amer said, indicating that there was a complete section in the new law about e-payments.

Amer also said the law comes to boost the role of banks in national development projects.

“Though the volume of banking deposits and savings in Egypt has soared to EGP 4 trillion in recent years, most of this financial liquidity has not been fully tapped in setting up development projects,” Amer added.

Article 48 states that a coordinating council will be formed by the president to take charge of coordinating the CBE’s monetary policies and the government’s financial policies.

“The council will comprise experienced representatives from the government and the CBE and will meet at least once every three months and submit an annual report on its activities to the president,” it added.

Amer indicated that in the area of reinforcing control and oversight over the banking sector in Egypt, the law makes it clear that the CBE will be allowed to intervene to make sure that deposits in the banks under its control are mainly invested in development projects.

The draft law is divided into seven sections covering all areas of banking operations in Egypt.

Parliament's Economic Affairs Committee also introduced a new article stating that a Banking Sector Support Fund and a Defaulting Banks Bailout Fund would also be set up.

“While the first fund aims to boost the financial resources of the banks, the second seeks to settle the conditions of defaulting banks,” the committee report said, indicating that financial contributions to the two funds would come from banks operating in Egypt over 10 years.

“The banks will have to set aside 0.5 per cent of their deposits over a 10-year period to finance the two funds,” the report said, adding that each bank would also contribute one per cent of its net annual profits to them.

Meanwhile, parliament will begin this week discussing new government-drafted amendments to the public enterprise law (203/1991).

The draft law, which was approved by the economic committee on 12 May, includes amendments to 29 articles.

Minister of Public Enterprise Hisham Tawfik told MPs that the public enterprise sector in Egypt includes eight government-owned holding companies with 121 affiliated subsidiaries operating in all kinds of businesses and employing close to 250,000 workers.

"According to the new law, no new companies, not even a new production line, will be set up unless approved first by an investment committee in charge of reviewing the economic feasibility of new companies and projects," said Tawfik, indicating that public enterprise companies incurred enormous losses over the past 40 years and that this has to come to a halt.

"In the fiscal year 2017/18, for example, 48 companies affiliated with the public enterprise sector incurred EGP 16 billion in losses as well as EGP 44 billion in debts," said Tawfik, adding that "the law aims to liquidate the loss-making companies which are still haemorrhaging the state’s treasury."

Article 38 of the law states that if the losses of a company exceed the value of the financial rights of shareholders, the general assembly will have to meet to raise its capital to cover losses or merge it with another company or liquidate it.

"Under this law, not a single loss-making company will be allowed to operate," said Tawfik.

Tawfik said Article 6 states that the concerned holding company will set up a number of principles and criterion on the creation of new companies.

"Topping the list of these criteria, which have to be ratified by the concerned minister, is that the new company should be economically feasible and represent an added value to the national economy," said Tawfik.

The amendments to the public enterprise law, however, faced objections from workers and their representatives in parliament.

Gibali Al-Maraghi, chairperson of parliament’s Labour Committee, said the amendments introduced by Tawfik would negatively affect the interests of workers and trade unions and pave the way for privatisation.

“After much discussion of the amendments by the committee, all members agreed that they were not in the interest of workers and companies in all industrial sectors in Egypt,” Al-Maraghi said.

Committee member and General Egyptian Federation of Trade Unions Secretary-General Mohamed Wahba said the amendments open the way for privatising most public sector companies in a way detrimental to the interests of thousands of workers.

“Article 38 of the newly amended law states that a company incurring losses that exceed half of its capital shall be liquidated,” said Wahba, adding that this would push 40 per cent of companies into liquidation and would do a lot of harm to workers.”

Wahba said workers and trade union activists had expected that the amendments would reflect a new government policy aimed at upgrading industrial companies.

“But we were surprised that the amendments opted for the easy way out — which is liquidating and selling companies rather than streamlining their performance,” Wahba said.

Also on the agenda of parliamentary debates this week is a discussion of new government-drafted amendments to three laws on taxes.

A report by the House's Budget and Plan Committee said amendment of three articles of the law regulating taxes on agricultural land (113/1939) will extend exemptions granted to the agricultural sector to enhance its role in the coming period.

"Those who work in the agricultural sector, be they farmers or companies, will be relieved of the burden of agricultural land taxes for three years as an incentive to boost agricultural production," said the report.

Parliament will also discuss amendments to nine articles rin the stamps law (11/1980).

The committee's report indicates that the law imposes a stamp tax of 1.25 percent on non-resident sellers of financial securities, 1.25 percent on non-resident buyers, 0.5 percent on resident sellers, and 0.5 percent on resident buyers.

The agenda also includes discussion of amendments to three articles of the income tax law (91/2005).

These aim to regulate capital profits resulting from the transfer of the ownership of lands affiliated with public enterprise companies and other companies in which the state owns more than 51 per cent of shares to banks as part of settling their banking debts.

Parliament is also expected to take a final vote on a newly amended law regulating health precautions related to the prevention of epidemic and infectious diseases.

The law, drafted by head of the House's Health Affairs Committee Mohamed Al-Amary, aims to help the state in its war against the coronavirus.

The law grants the minister of health the power to make face masks obligatory and take the necessary measures related to burying the victims of the coronavirus.

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