Egyptian investors challenged the government in court Tuesday over a tax on stock dividends and capital gains, saying it is causing confusion and hampering investment.
Traders say the market still doesn’t understand how the tax will be calculated or collected, adding to uncertainty aroused by an indefinite delay to parliamentary elections. The stock market hit a four-month low in early trade.
The head of the Egyptian stock exchange complained the tax rules were too complicated and fund managers called them burdensome.
President Abdel Fattah al-Sisi approved the law, which imposes a 10 percent tax on capital gains and dividends, last July as part of efforts to overhaul an economy battered by years of political turmoil.
But the “executive regulations”, which stipulate how the law will be applied, were not published until earlier this month and investors say they leave many ambiguities.
Finance Minister Hany Kadry Damian has estimated that the stock market tax would raise between 3.5 million and 4.5 million Egyptian pounds ($460,000 and $590,000). Profits from stock market transactions in Egypt were previously tax-free.
The Egyptian Association for Financing and Investment Studies, representing stock market investors and traders, filed a lawsuit in an administrative court demanding changes to some articles of the law, Mohsen Adel, deputy head of the association, told Reuters on Tuesday.
Adel, a member of the Egyptian Stock Exchange (EGX) board and an advisory economic council for the presidency, said on his Facebook page that the lawsuits were filed due to the government’s “failure to respond” to the issue.
The tax applies to dividends and capital gains made from trading stocks on the Egyptian stock market and unlisted companies.
“What we aim at through filing this lawsuit is to abolish the law because it hurts the investors, the stock market, and also harms competition with our neighbouring markets,” said Awad Altersawi, the legal adviser of the Egyptian Association for Financing and Investment Studies.
The main index of Egypt’s Stock Exchange rose by 32 percent in 2014, the biggest jump among global markets. But the EGX has fallen this year, hit by liquidity shortages and dropping further since the new tax regulations were issued.