Egypt’s Banking Experts Warn Of Imposing More Taxes On Loans

Many banking experts have shown disagreement with the Shura Council which suggests the amendment of article no. 57 which regulates the taxes on loans and credit facilities.

The Shura Council suggests that article no. 57 shall be amended as follows: “a proportional tax shall be due at the rate of four per thousand on the balances of credit facilities, loans, advances and any other financing form provided by banks during the financial year. The bank is obliged to pay the taxes within seven days at most after the end of each quarter. The bank and the customer shall bear the tax on a 50-50 basis.”

The ambiguous phrase which says ”any other financing form provided by banks” means that taxes will be levied on the letters of credit and guarantee as well as any other banking service which were earlier exempt from taxes, experts say. The article also means that taxes on loans will be doubled from 0.002% to 0.004%, they added.

Ahmed Abdel Megid, head of loans department at Arab Investment Bank, affirmed that the Egyptian market will not withstand any other challenge, besides the high interest rate on lending and the market recession.

Egypt has to implement mechanisms to attract investors to the market which suffers from dollar liquidity shortage and low loan-to-deposit ratios, instead of imposing new taxes on loans, Abdel Megid added.

Osama Abdel Khalek, member of the board of directors of the Egyptian Society for Public Finance and Taxes, stated that this amendment means that the stamp tax on loans and credit facilities provided by banks will be raised to 0.004% annually, up from 0.002% as stated in the law no. 143 of 2006. This will greatly dampen the demand for borrowing from banks, he warned.