Egypt Tax Delay Means Rich Pay Less to Cut Deficit: IMF

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Egypt's President Abdel-Fattah El-Sisi
Egypt's president Abdel-Fattah El-Sisi. Photographer: Chris Ratcliffe/Bloomberg

The International Monetary Fund criticized Egypt’s decision to delay imposing capital gains tax on stocks because it means that the cost of shoring up public finances will be borne by “people who are less able to afford it.”

“We are disappointed that the capital gains tax has been postponed,” Chris Jarvis, the lender’s Egypt Mission Chief, said in an e-mailed response to questions. “This was a tax which raised needed revenue and which was fair.”

Egypt’s benchmark EGX 30 Index for equities climbed the most in almost two years on May 18 after the decision to postpone the 10 percent tax for two years, which officials say is aimed to make the stock market more competitive. The gauge advanced 1.5 percent at 1:41 p.m. in Cairo, poised for the highest close since March.

The government has struggled to raise more money from wealthier Egyptians as it seeks to narrow one of the biggest budget deficits in the Middle East. In March, officials canceled a 5 percent surcharge on the highest-earners, just nine months after it went into effect. They also reversed an increase in the top rate of income tax introduced in 2013.

Postponing the capital gains tax “will mean that more of the cost of reducing the budget deficit will now be paid by people who are less able to afford it,” Jarvis said.

IMF Talks

Egyptian officials haven’t requested IMF financing, he added. The North African country had reached two initial loan agreements with the fund since the 2011 uprising that toppled former President Hosni Mubarak before withdrawing the requests. It turned instead to Gulf Arab allies for billions of dollars to meet financing needs.

Egypt’s net foreign reserves rebounded to $20.5 billion in April, the highest since 2011, after receiving $6 billion in deposits from Saudi Arabia, United Arab Emirates and Kuwait.

The capital gains tax was part of economic measures the government had been pursuing to shore up public finances to restore investor confidence.

Abdel-Fattah El-Sisi, elected as president last year after leading the ouster of President Mohamed Mursi in 2013, has cut energy subsidies. The central bank devalued the pound by about 6 percent earlier this year to 7.6301 a dollar. It has been unchanged since February 2.

Jarvis said the Egyptian central bank needs to adopt “a more flexible exchange rate policy focused on achieving a market-clearing rate and avoiding real appreciation.”

The flexibility “would improve the availability of foreign exchange, strengthen competitiveness, support exports and tourism, and attract foreign direct investment. This would foster growth and jobs and reduce financing needs,” he said. The central bank says the pound is subject to a managed float.

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