Chair of parliament’s Planning and Budget Committee Abdel-Moneim Imam has long been against the imposition of new taxes along the lines the government has been promoting because of what he sees as the wider public interest.
“I presented a motion in the House of Representatives [the lower house of Egypt’s parliament] against the government’s decision to apply the law on the capital gains tax [CGT] in January next year,” he said, stressing that he opposes the law.
The government has said that a CGT on Egyptian Stock Exchange (EGX) transactions will be applied as of 1 January 2022. The tax is meant to increase government revenues, but it has been repeatedly postponed on the back of fears of scaring off investors.
For Imam, it would be against the public interest to impose the tax. “Egypt is an emerging economy that is just emerging from a critical period due to the coronavirus pandemic. The economic repercussions are still being felt the world over. EGX is surrounded by competing markets. Why would an investor be drawn to invest in it when they could invest in other stock exchanges in the region if additional taxes were levied,” he asked.
The government would risk scaring off investors by imposing the tax, going against the public interest in seeing a strong and thriving stock exchange, he added. The decision to do so would be “counter-productive”, especially since the tax would bring in only some LE1.5 billion, according to the minister of finance and quoted by Imam.
The 10 per cent CGT is scheduled to be imposed on net portfolio earnings at the end of the tax year after deducting brokerage fees. Only domestic investors and resident foreigners will be obliged to pay the tax.
Imam said the EGX Index has already retreated by LE27 billion, and it remains seriously undercapitalised. There are more than 100,000 joint-stock companies operating in Egypt, but only 220 are listed on the EGX.
“What is the government’s target: attracting or deterring investors,” Imam asked.
Many leading Arab companies have withdrawn their investments from Egypt’s financial markets, Imam said. He argued that the existing stamp duty on Stock Exchange transactions was easier to apply and clearer to investors than the proposed CGT.
In 2017, the government imposed a one per thousand stamp duty on EGX transactions. The rate has been 1.5 per thousand since 2019.
For Imam, the new CGT will significantly damage Egypt’s financial markets at a time when the state intends to resume its initial public offering (IPO) programme. Instead of introducing the CGT, the government should amend the income tax and increase stamp duties, he said, adding that this would benefit both the Ministry of Finance and the Stock Exchange.
Companies with stocks offered for sale under the IPO programme, such as the New Administrative Capital and the Ghazl Al-Mahalla Club, would see revenues ploughed back into investment, Imam said.
To end the public companies’ dependence on government support requires attracting investors to buy the shares on offer under the IPO programme, he said, which would also lead to better governance and transparency as well as the collection of more revenues.
Imam is the leader of the Egyptian Labour Party, and he said it was in this capacity that he was defending the interest of Egypt’s middle classes.
“I want to see this economic group investing their money in the Stock Exchange as one of the investment tools available to individuals and companies,” he stated.
There needed to be a clearer and more integrated outlook for Egypt’s securities market, with the focus not only directed to collecting taxes, he added. Improving the economic environment in tandem with the success of the government’s financial reform programme would require a more comprehensive outlook.
Imam is against the imposition of further taxes, describing them as “an immense burden on households.” He said it was important to maximise the benefits of the current national projects as sources of income for the state. This would come about by encouraging investment and not by imposing more taxes, he said.
The Planning and Budget Committee has presented amendments to the value-added tax (VAT) law to parliament, and the bill is scheduled to be reviewed during this parliamentary session. There will also be discussion of amendments pertaining to taxes on e-commerce, Imam said.
The amendments to the VAT law include increasing taxes on pastries and other goods. “I objected to this because it will negatively affect the middle classes. I am all for taxes that don’t affect economic activities or harm the middle classes,” Imam said.
The industrial sector needs support, and this means that there should be no further real-estate taxes.
The Ministry of Finance is seeking to fight tax evasion through better administrative practices, he said, adding that a major challenge was to make financial inclusion a success in order to encourage the informal sector to join the formal economy and thus to extend the tax base.
*A version of this article appears in print in the 11 November, 2021 edition of Al-Ahram Weekly