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Finance Ministry considers removing tax exemption on state bonds

CAIRO: Government bonds could lose their tax-exempt status as part of a revised budget law scheduled to go into effect this July, said Minister of Finance Youssef Boutros-Ghali at a press conference Sunday. Treasury bills, with shorter maturity periods than bonds and which were formerly tax-free, are now taxed as part of a package of …


CAIRO: Government bonds could lose their tax-exempt status as part of a revised budget law scheduled to go into effect this July, said Minister of Finance Youssef Boutros-Ghali at a press conference Sunday.

Treasury bills, with shorter maturity periods than bonds and which were formerly tax-free, are now taxed as part of a package of budget reforms proposed, debated and passed in a swift parliamentary session on May 5.

State bonds’ tax-free status is protected within the current budget law, he said. “Of course with the new budget law, we are going to revise this, he said. “But again, it will be effective only when the law is up.

Boutros-Ghali said he would recommend the new budget law drop tax exemptions on bonds so that all state financial instruments stay aligned. “I have one that is tax exempt and one that is not tax exempt, he said. “It doesn’t make any sense.

For now, bonds will stay tax-free, he said.

Boutros-Ghali said he is not concerned about new taxes sparking a bond sell-off. Bonds are auctioned off, he said, so sellers will likely add the tax on to their asking price.

To quell investors’ worries that they will have to pay taxes on bills they already own, the minister said treasury bills issued before May 5 will be exempt.

“Investors have been asking, they’ve been worried, they’ve been concerned. I want to make it very clear, he said. “The law came into effect at 10 pm, May 5. If the t-bill was issued at 9 pm, May 5 it is tax exempt. And until it is fully redeemed – there is no retroactivity.

The May 5 bill was the first time Parliament has used its year-old right to adjust budget issues, he said. One year ago the constitution was amended to allow the parliament to change the budget.

“Previously our constitution was a bit like the French one where the Parliament cannot tinker with the budget. It can either say yes or no but it can’t go fiddle around, he said. “We changed that.

The measures on May 5 also cut many energy-intensive industries’ free zone status. Boutros-Ghali said all income earned before 10 pm May 5 will be tax-free. The government expects to raise LE 500 to 600 million per year from additional tax revenue paid by formerly excused firms, he added.

Boutros-Ghali acknowledged recent inflation worries, stirred by the bill’s hike on many fuel prices.

“Obviously the recent adjustment in fuel prices will add a one-off movement, he said, noting that the ministry does not expect the price hikes to boost inflation by more than half a percent.

Inflation was recorded at 16.4 in April, with food prices up by 22 percent. Some estimates predict inflation will reach 20 percent in the coming months before cooling off. Reacting, the Monetary Policy Committee at the Central Bank of Egypt raised overnight lending and deposit rates to 12 and 10 percent last Thursday.

Inflation results from a basket of prices, including those of commodities from abroad, Boutros-Ghali said. “We’re hoping that if it [inflation] slows down abroad, it will start slowing here.

He said the state will act to help the poor if inflation should hurt their ability to buy necessities like food. He did not comment on specific measures. “Let’s cross that bridge when we get to it, he said.

Topics: FJP

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https://www.dailynewsegypt.com/2008/05/11/finance-ministry-considers-removing-tax-exemption-on-state-bonds/
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