Egypt’s on-again, off-again relationship with capital gains tax (CGT) on equities has taken another unexpected turn. The government’s move to scrap the 10 per cent levy, barely a decade after its initial enactment, is aimed at boosting trading volumes.
The CGT, intended to capture profits from asset sales, has been controversial since its introduction in 2014. Its application to stock market transactions has been repeatedly suspended, reflecting a persistent tension between the desire for revenue generation and the perceived need to nurture market sentiment. This latest reversal suggests that the latter concern has definitively won out.
While the removal of the CGT may indeed provide a short-term boost to trading volumes and investor confidence, it is unlikely to address the deeper structural challenges facing the Egyptian market.
Sustainable growth requires more than just the absence of a tax. It demands a comprehensive strategy that fosters investor trust, strengthens corporate governance, and promotes genuine economic diversification.
Pros and cons
The rationale offered for scrapping the tax centres on the argument that it stifles investor appetite and diminishes the allure of Egyptian equities. Proponents of this view contend that the CGT acts as a disincentive, diverting capital away from the local bourse. While there may be some truth to this, it is a simplistic explanation that ignores broader market dynamics.
It is certainly true that CGTs exist in many developed and emerging markets. The US, for example, employs a tiered CGT system, with rates ranging from 10 to 37 per cent depending on holding periods and income brackets. The UK applies a basic rate of 10 per cent to stock gains. Emerging economies like Brazil, Nigeria, and South Africa also utilise CGTs, often at rates comparable to or exceeding the one Egypt is now discarding.
The global prevalence of CGTs suggests that their impact on market activity is complex and contingent on a host of other factors, including macroeconomic stability, regulatory transparency, and the availability of alternative investment opportunities.
