By Sara Aggour
The return of a previous exemption of banks’ loans provisions from taxation relieves Egypt’s banking sector but does not rule out the need for legislations clarifying such funds, experts said after the Ministry of Finance’s decision to annul the controversial bill.
The Finance Ministry amended on Thursday the law which stirred a dispute following its ratification by the Shura Council in May, as officials in the banking sector deemed it unjust.
Magdy Toulba, a financial and economic expert, stated that it is essential that the Central Bank of Egypt issues laws defining provisions that are often used to escape taxation.
“Worldwide, some banks overestimate the loan provisions to escape taxes,” Toulba said. “Strict rules should be set by the Central Bank to define the terms and conditions of those provisions.”
The law, which taxes funds set aside by banks to cover potential losses caused by defaulting debtors, was being reviewed by the Central Bank. Bankers argued that these funds are deducted from net profits and therefore should not be subject to taxes, adding that the initial draft bill exempting 80% of the loan provisions from taxation should be reclaimed. Combined, the total size of provisions in the Egyptian banking system exceeds EGP 57bn.
Amending the allegedly marred law was reached following “a mutual agreement between both parties (the Central Bank and the Finance Ministry),” said Ebtessam Saad, media advisor to the minister of finance.
Originally proposed by a Freedom and Justice Party member of the Shura Council, the draft was emblematic of the lack of coordination between governmental institutions, as Governor of the Central Brank Hisham Ramez said he was not consulted prior to the ratification of this bill.