(MENAFN- Daily News Egypt) The government's decision to move ahead with taxes imposed on capital gains and dividends has heightened fears of steering foreigners away from investing in Egypt's bourse, brokers and traders said.
Tension was recently renewed between brokers and the tax authority, as the law entered its ninth month without bylaws outlining its details. A meeting on Sunday between brokers and the authority marked a peek in the feud, where the latter insisted on implementing the law, despite traders' comments on its ambiguity.
For two consecutive days, Egypt's benchmark EG-30 saw a drop, reaching 3.19% on Sunday, and 1.16% on Monday. The stock market recorded a collective loss of approximately EGP 1bn, which some analysts attributed to tension over the law.
The Egyptian government applied a 10% tax starting in July 2014 on capital gains and stock dividends on the Egyptian stock market as well as unlisted companies.
The new taxes came as Egypt, which relies heavily on Gulf aid following years of economic stagnation, reached to diversify its sources of revenue. Egypt has also been seeking to bridge a budget deficit that has widened amid a slow tourist flow and foreign direct investments (FDI) that dwindled during the early years of the political turmoil.
At the time the tax was announced, Finance Minister Hany Kadry Damian said Egypt expects to reap between EGP 3.5bn and EGP 4.5bn annually from it. Nine months after its implementation, brokers today doubt the amount collected is anywhere near that.
"We have a lot of issues where this tax law is concerned: firstly with the absence of any practical method to apply it, and secondly with the absence of any figures on how much was collected, " Ayman Hamed, CEO of NAEEM Brokerage, who attended Sunday's meeting, said.
Talking to Daily News Egypt, head of Misr for Central Clearing, Depository and Registry, Mohamed AbdulSalam said the total amount of taxes collected based on the law was around EGP 250m. Most of these were on dividends, adding that figures for the amount due for the first six months of implementing the law were not within his immediate reach.
Hamed explained that the new taxes only added "unneeded complications" for non-Egyptian traders.
"Our heavyweight Arab traders are largely from the Gulf states, who face no taxes whatsoever, and therefore to them these taxes make the market even less attractive," Hamed said. "As for foreigners, where taxes are imposed, this law is incomprehensible."
"The law is an unnecessary bottleneck, which is driving away foreign investors," Hamed explained.
Echoing the same opinion was Rania Yacoub, Chairman of 3way Finance, who confirmed that the total number of active traders on the bourse has dropped to 30,000 active entities, from a previous 80,000 last year.
"There are countless negative aspects where this law is concerned, because it was based on incomplete data," she said. Yacoub further explained that the enhanced performance of the stock market encouraged the issuance of this law, despite the rise in index which mirrored only a small fraction of the shares, and not the vast majority.
She further said that prior to the law's announcement, trading exceeded the EGP 1bn in trading, but has gradually declined to hover around a current EGP 400,000.
"The law should at least be delayed for another three years, since it harms the Egyptian bourse's competitiveness, drives away new capital, and repels investors. Implementing it at this time does more harm than gain," she said.
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