Tax repeals long-awaited positive signal for Egypt's equity market

Ahram Online, Monday 8 Apr 2013

Repeal of current capital gains and planned dividends tax announced by finance ministry on Sunday signals is a positive signal for investors

Tax repeals
File photo: A man walks by the Egyptian Stock Exchange in Cairo (Photo:Reuters)

Egypt's bourse rebounded at news of the repeal of effective and planned stock market taxes on Monday, with the benchmark index gaining 1.49 percent.   

Finance Ministry aide Abdallah Shehata announced on Sunday evening that the government intended to cancel a 10 percent capital gains tax imposed on mergers and acquisitions as well as a planned tax on cash dividends.

The capital gains tax, ratified late last year, has been applied in a recently finalised acquisition of Nationale Societe Generale Bank (NSGB) by Qatar National Bank (QNB), for which shareholders will be refunded, according to Shehata.

The repeal of this tax in particular has dramatically boosted investor confidence in the market, according to Hani Genena, head of research at Pharos Holding.

"Mergers and acquisitions has been a key activity within the market since 2012, especially in the past three to four months," explains Genena, citing the acquisition of NSGB and the bid made for Orascom Telecom Holding (OTH) by Russian conglomerate Altimo last month, among others.

Genena went on to explain the reasons behind the repeal of the tax. "Besides the negative impact on the market by the deduction itself, there was widespread confusion in its implementation, as there was no agreed upon method of calculating tax liability for fund managers and the Exchange."  

The government has also reversed its decision to move forward with a planned tax on cash dividends, first proposed in 2011 and brought back under discussion in Egypt's Upper House of Parliament last week.

The taxation amendments, according to Genena, send a strong message of support for the equity market after months of seeming hostility from the government. "This attitude was most recently typified by witch-hunting" he elaborated, referring to a spate of asset freezes and travel bans targeting major players and investors in the Egyptian bourse.

Egypt's index plummeted last month after the country's prosecutor-general issued a travel ban on Onsi and Nassef Sawiris, the founder and CEO of Orascom Construction Industries (OCI), Egypt's largest listed company.

OCI was being charged with having exploited a legal loophole to evade taxes on the sale of a subsidiary to French cement giant Lafarge which took place five years prior.

On 17 March, a decision by the prosecution to freeze the assets of 23 business figures under investigation for insider trading, including major heavyweight Saudi investors in the market, further rocked the market before being reversed by a court later that same week.    

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