The International Monetary Fund defended Egypt’s decision to tax investor profits and the interim prime minister said he won’t reverse the plan even after it caused stocks to plunge.
“The new tax measures proposed by the Ministry of Finance are well targeted and fair,” Chris Jarvis, IMF Mission Chief for Egypt, said in a statement. “Solving Egypt’s budget problems requires tax increases as well as subsidy cuts. Taxing high income earners, including by taxing gains from capital, can make an important contribution and benefit all Egyptians.”
The proposed law calls for a 10 percent annual tax on net realized portfolio profits and cash dividends. The Egyptian Exchange said the plan was amended to exempt cash dividends below 15,000 Egyptian pounds ($2,098). The benchmark EGX 30 Index for stocks tumbled 4.2 percent yesterday, capping the biggest four-day drop since November, 2012. The measure rebounded 2.1 percent at 11:37 a.m. in Cairo.
Interim authorities proposed the tax days before former military chief Abdel-Fattah El-Sisi takes office as president after winning last week’s election. El-Sisi, who led the ouster of Islamist President Mohamed Morsi in July, said before the vote that private businesses must accept lower profit margins if necessary to share the cost of reviving the economy amid the worst slowdown in two decades. He also said energy subsidies must be gradually restructured without harming the poor.
Interim Prime Minister Ibrahim Mahlab said the tax plans are part of efforts to achieve social justice and will not be reversed, according to Al Masry Al Youm newspaper. The levy could bring in as much as 3.5 billion Egyptian pounds in revenue, the newspaper cited him as saying.
“The rich must shoulder some of the burden,” he said, according to Al Masry Al Youm.