By halting the capital gains tax, the governments favours the interests of investors and businessmen over those of citizen, stated the Egyptian Center for Economic and Social Rights (ECESR).
ECESR made this statement in a release on Tuesday analysing the repercussions of the Egyptian government’s decision to not impose a tax on capital gains.
The government decided on Monday to halt a 10% tax on capital gains for two years, to maintain domestic market competitiveness, whilst maintaining the 10% tax on dividends. The government had decided to implement the capital gains tax last July.
“The decision raises questions regarding who dictates the general policies of the state,” ECESR’s statement read. “The government needs to broaden the tax base in order to be able to revive the deteriorating public services sector and meet its constitutional obligations to spend on the education and health sectors.”
However, Head of the Egyptian stock market (EGX) Mohamed Omran said the decision shows the government understands the “developmental role” that the stock market is playing. He pointed out that over EGP 100bn has been pumped into increasing capitals through the companies listed in the market over the last decade.
“Investors and individuals involved in the stock market have been undergoing a long-term battle, not just against this particular decision, but against any future decisions that might cause harm to their business,” said Noaman Khalid, Economist at Commercial International Asset Management.
The ECESR mentions this is not the first time the government has retreated from imposing the capital gains tax due to pressures from investors. In 2011, then-Minister of Finance Samir Radwan had announced plans to impose the tax. However the government retreated due to considerations of the economic conditions prevalent at the time.
Khalid points out that the methodology of taking decisions is worrying, since several authoritative figures, including Head of the Egyptian Financial Supervisory Authority Sherif Samy and the Minister of Finance, reiterated the government’s commitment to this decision in previous instances. “The foreign investor observes how decisions are taken and then revoked, and this too has a negative impact,” stated Khalid.
“The current government continues to pursue the same polices that were undertaken by the National Democratic Party (NDP) by favouring the interests of investors and businessmen over those of citizens,” the statement said.
Decisions to lower and unify taxes for individuals and companies in the high income bracket are considered a setback on constitutional promises that guaranteed progressive and multi-sourced taxation, according to ECESR’s statement.
Article 38 of the Egyptian constitution stipulates that “the tax system, as well as other public liabilities, aim at developing State resources and achieving social justice and economic development”.
The statement views that the Egyptian government faces difficulty in balancing between two objectives – realising social justice and maintaining a healthy and efficient investment climate.