Tax freeze reassures investors in Egypt

TaxThe Egyptian government’s decision to suspend a capital gains tax for two years has been welcomed as a sign the country will be friendly to investors in coming months.

The government announced the 10% capital gains tax last year, but did not issue executive regulations explaining the collection methods for ten months. The delay seems to have contributed to a downturn in the country’s stock market with many investors complaining about a lack of clarity in the laws.

After the news of the tax freeze, the stock market rose sharply, seeming to confirm the opinions of many analysts that the Egyptian economy would reward equity and bond investment.

“We like Egypt as an under-banked economic reform story, with accelerating growth and bank lending,” wrote investment firm Renaissance Capital in a report on emerging and frontier markets released in May.

“We expect the government under General al-Sisi to continue pushing forward pro-growth reforms, and so long as financial support from regional Gulf sponsors continues, then banks, real estate, and cement we see as likely to benefit from an acceleration in growth and investment.”

Egypt’s sponsors in the Gulf – Saudi Arabia, the UAE and Kuwait – have given more than $42 billion over the past two years to support the military government which ousted President Mohamed Morsi in July, 2013.

However, Egypt’s government was recently embarrassed by the leaking of recordings, which Egypt has not verified, in which al-Sisi appeared to scoff at his Gulf sponsors, saying they “have money like rice”.

The news story prompted a brief internet meme in which social media users in the Gulf posted pictures of bags of rice, claiming they contained money.

©2015 funds global mena

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