The Egyptian stock market is currently witnessing discussions on the potential implementation of CGT on profits generated from the sale of certain assets, including securities.
This topic has sparked varying opinions among financial experts and market participants.
CGT debate
Executive Director of EL-Suk Brokerage Mahmoud Atta expressed concerns that the CGT could harm the EGX and the Egyptian economy, potentially eroding trust between investors and the exchange.
Conversely, Medhat Nafie, an economics professor, argued that implementing the CGT would not negatively impact the economy, citing its acceptance in various markets, including Europe and the United States.
Many investors are accustomed to this tax, as they have previously paid it in their own countries, Nafie emphasized.
He also pointed out several advantages of the CGT, such as promoting income equality and avoiding the imposition of certain obstacles, since it is applied only to profits rather than the total revenue.
However, Atta highlighted some challenges associated with the CGT, including difficulties in tracking transaction details and increased trading costs. As a result, he predicted that the tax may not be implemented in Egypt during the current or upcoming year.
Both experts acknowledged the necessity of equitable CGT application, with Nafie stressing that the tax collection mechanism should ensure administrative costs do not surpass the revenue generated.
He also pointed out that the CGT is part of Egypt's tax reform agreement with the International Monetary Fund (IMF), making its eventual implementation inevitable, especially under the ongoing $8 billion loan programme.
Consequently, Atta recommended that the government consider abolishing the CGT and instead focus on enhancing the Initial Public Offering (IPO) programme, which has successfully attracted nearly $30 billion in proceeds.
CGT's historical context in Egypt
The capital gains tax was first introduced in Egypt in 2014 at 10 percent on shares traded on the EGX, replacing a previous stamp tax.
Nevertheless, the CGT has faced significant resistance, especially from finance and economics stakeholders, who argue that it may hinder market activity and discourage companies from listing.
Although the CGT was officially approved in 2014, it has been postponed multiple times, with a two-year suspension implemented in May 2015 following investor pushback.
The suspension was extended in 2016 for three additional years to encourage investment. The tax was set to be reintroduced in 2022 but was deferred again due to low market activity.
In May 2024, the government announced that the CGT would finally take effect starting from the March/April 2025 tax season, as part of its efforts to boost tax revenues. Egypt aims to increase its tax revenue by 32.1 percent for FY2024/2025, targeting over EGP 2 trillion.
Government initiatives for market growth
In January, the EGX launched the Egyptian Stock Exchange Development Board Strategy to enhance market efficiency and stakeholders' collaboration.
Additionally, a Sharia-compliant index was introduced to cater to a broader range of investors.
Since the beginning of 2024, six new companies have been registered on the EGX. The exchange has also initiated updates to its trading control system in line with international standards to create a more attractive investment environment.
Recent market performance
Last week, the EGX reported a total traded value of EGP 275.1 billion, with a trading volume of 5.18 billion securities across 557,000 transactions.
Egyptian investors accounted for 88.2 percent of the traded value in listed stocks, while foreign and Arab investors made up six percent and 5.8 percent, respectively.
Foreign investors were net sellers, with a net of EGP 447.8 million, while Arab investors were net buyers, totaling EGP 185.4 million.
Since the start of 2024, Egyptians have represented 86.3 percent of the traded value, while foreign and Arab investors accounted for seven percent and 6.7 percent, respectively.
Notably, foreign investors have been net buyers, with EGP 1.6 billion, while Arab investors recorded net sales of EGP 9.8 billion.
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