By Mohamed Ahmed
The Egyptian government took three months to activate the decision postponing the collection of capital gains taxes that come from dealing in stocks. After announcing the decision on 18 May, President Abdel Fattah Al-Sisi ordered the publication of the decision in the official gazette on 20 August.
The postponement decision came after strong campaigns waged by stock market investors, after the reduction the EGX started during the Economic Summit in March until the 17 August session. On these days, the market decreased from 9,726 points to 8,803 points, registering a reduction of 9.5%.
The question here is: Did the market really respond to the decision to postpone the tax, as all parties on the market demanded, including the management of EGX and the Egyptian Financial Supervisory Authority (EFSA)?
The analysis of the EGX’s performance since announcing the postponement decision on 18 May until 27 August, the end of the week following the decision’s activation, shows that the market negatively responded. It declined from the level of 8,798 points to 7,078 points, a 19.54% reduction.
“Although everyone was eagerly waiting for the government to announce any positive decision in the issue of imposing taxes on the stock market, whether by cancelling or postponing the tax, the way the decision was activated in, and the surrounding local and international circumstances prevented benefiting from postponing the capital taxes for two years,” says Adel Abd Al-Fattah, Chairman of Themar Securities Brokerage – EAC.
According to Abd Al-Fattah, the government made a mistake when it delayed implementing the decision, and kept on deducting the tax of the capital gains from the foreign institutions. This left the same problem continuing for three months until the decision was activated, and consequently, worrying the foreign investors all the period where the tax was deducted.
“The market went through very difficult circumstances in the last three months, where after the market was relying on Emaar’s IPO to achieve a state of revival as a result of a high coverage rate, everyone was surprised by the reduction of the stock’s price directly after it was listed. This made the investors lose confidence in the new IPOs,” Abd Al-Fattah said.
He believes that the international crises played the biggest role in limiting the positives of postponing the tax. This was especially the case, as soon after the market started to overcame the consequences of the crisis of Greece’s debts, it was hit by a reduction in the Euro price that made the international stock markets panic.