To satisfy investors, finance minister announces forthcoming tax changes, sources say capital gains tax could go

Finance Minister Ahmed Kouchouk announced a set of taxation policy changes on Wednesday as part of a package to “encourage the business community.”

Among the changes being considered going forward is a move to reverse plans to implement the capital gains tax on stock market transactions.

Egypt is pursuing greater investment inflows in line with policy recommendations from the International Monetary Fund under an ongoing loan program, its fourth in less than a decade.

Kouchouk, who did not announce when the measures would be implemented, said that the primary aim of the taxation amendments was to increase the tax base — something he said would ultimately benefit investors and “serve both the state and investors while enhancing services and support for citizens.”

Among the new measures will be simplified taxation procedures for small businesses, entrepreneurs, freelancers and professionals whose annual turnover does not exceed LE15 million, Kouchouk said, noting that these measures are geared to support the integration of the informal economy.

According to estimates from the government research organization, the informal economy currently accounts for around 40 percent of gross domestic product.

The minister also announced plans for a cap on late payment penalties and a higher turnover threshold for international companies to be exempted from submitting paperwork prior to deciding pricing.

VAT simplifications are on the way as well, Kouchouk said. Consultations with investors and the Egyptian Tax Authority will continue for some weeks.

Investment and International Trade Minister Hassan al-Khatib also told the press on Monday that the government is considering scrapping the capital gains tax on stock exchange transactions, with a decision expected within three weeks.

A taxation authority source told Mada Masr that there is a general inclination within the Finance Ministry in favor of removing the capital gains tax on stock market transactions. A government source told Mada Masr on condition of anonymity that the capital gains tax changes are to include the reduction of some fees associated with transactions on the stock exchange and through the Financial Regulatory Authority.

The tax was initially among demands for more progressive taxation policy in the wake of 2011. President Abdel Fattah al-Sisi introduced the tax in 2014, but its implementation has been deferred.

The International Monetary Fund (IMF) voiced its "disappointment" when Egypt first postponed the tax’s implementation, saying it is fair and would help generate necessary revenues. Chris Jarvis, head of the IMF's Egypt Mission at the time, said that the decision meant "more of the cost of reducing the budget deficit will now be paid by people who are less able to afford it."

The tax covers all economic activities, including the stock market. If implemented on stock market transactions, the tax would be levied on the profits an investor makes from selling a stock, but only once the stock is sold. As long as the shares remain unsold, no tax is collected on capital gains, regardless of how long they are held or how much their value increases. 

In recent years, the government has repeatedly postponed the tax's implementation without fully canceling it, with the latest delay announced in May.

The taxation authority source said that the aim of canceling the implementation is to attract more investors to the Egyptian stock exchange, particularly given the prioritization of the government’s privatization program. The privatization program is another IMF policy recommendation.

Plans to begin collecting the tax in March 2025 appear to have shifted with the appointment of the new finance minister, Ahmed Kouchouk, in the Cabinet reshuffle this summer. Kouchouk, said the taxation source, sees the tax as a “headache” not worth the revenue expected from it.

Chambers of Commerce Securities Division head Awni Abdel Aziz likewise welcomed the government's decision to cancel the tax. Abdel Aziz told Mada Masr that the tax diminishes the Egyptian stock market’s appeal, especially as several regional countries are not using it.

Yet, a former senior official at the Egyptian Tax Authority who spoke to Mada Masr on condition of anonymity argued that the move to cancel the tax is a waste of fair tax revenues. "Stock market investors have long pushed hard to block the tax, just as they did with [former Prime Minister] Ibrahim Mehleb, for instance,” the official said. 

“Mehleb was invited to a stock exchange opening session at the time, where he met with several investors who pressured him to delay the tax. The announcement of its postponement came that same day."

MP Mohamed Badrawi, a member of the House of Representatives' Planning and Budget Committee, told Mada Masr that for the government to fully cancel the capital gains tax, it would need to amend the income tax law, which would require parliamentary approval.

An Egyptian Tax Authority source who spoke to Mada Masr in June said that the government is also considering amendments to the VAT law to reduce the number of exempt goods and services.

Capital gains tax, as it is implemented on income, is generally considered a more progressive tax in comparison to VAT, which is implemented on consumers.