Market twists and turns on capital gains tax news

After climbing in the first hour of trading, Egypt’s stock market took a tumble Wednesday when an anticipated announcement of a change to the country’s capital gains tax failed to materialize.

The sharp decline started at around 10:30 am, after reports indicated that the Cabinet’s Economic Committee did not pass any resolutions on the controversial tax. 

The benchmark EGX30 index closed the day down 0.82 percent at 8,756 points, bringing year-to-date losses above 1.9 percent. Egypt’s small and mid-cap EGX70 index took a similar dive after 10:30am, dropping 0.43 percent by end of trading and bringing year-to-date losses above 16.5 percent.

Wednesday’s ups and downs echo a larger trend in the market, which for weeks has shifted depending on news and rumors about the future of the tax.

Egypt first introduced a 10 percent capital gains tax in July 2014, as part of a drive by Abdel Fattah al-Sisi’s government to increase revenue.

The tax caused controversy even before it was signed into law. In May, when the Finance Ministry first proposed taxing stock capital gains and dividends, investors protested and the market took a nosedive.

With investors complaining that new taxes should not be passed until the economy was on stronger footing, the tax was shelved until July 2014, when Sisi signed it into law. Executive regulations, which detail how the law should be applied, were not issued until early last month.

On April 28, a group of investors filed a lawsuit against the government, arguing that the tax rules are confusing and will deter potential investors. Rumors that the tax might be canceled sent the market rallying, closing April on a positive note.

That optimism was subdued April 30 when the government clarified that it would review the mechanism in the tax law but not the essence of the regulations, sending the market down again. 

Wednesday’s non-news, and the market’s response, indicate that uncertainty about the future of the tax is far from over.