Egypt imposes 10 pct tax on capital gains, dividends

Reuters Middle East

(Adds context, investor comments)

By Nadia El-Gowely and Ehab Farouk

CAIRO, July 1 (Reuters) - Egypt's president approved a law on Tuesday imposing a new 10 percent tax on capital gains and stock dividends, as the country seeks to revive an economy battered by more than three years of political turmoil.

The tax applies to dividends and capital gains made from trading stocks on the Egyptian stock market as well as unlisted companies.

"(This) comes in response to the major challenges which the Egyptian economy has faced which demand coordination of all efforts to protect and rebuild confidence in it," a statement from the presidency said.

Egypt, which has relied heavily on aid from Gulf Arab allies in the past year, needs to implement broad economic reforms in order to revive its economy, which saw a drop in foreign investment and tourism after the 2011 uprising.

The government is trying to boost state revenues without discouraging investment.

The tax on stock market gains, which authorities announced in May, was watered down last month after the bourse recorded its biggest daily drop in almost a year.

Finance Minister Hany Dimian has estimated that the tax would raise between 3.5 and 4.5 million Egyptian pounds.

New President Abdel Fattah al-Sisi signed the law after passing a budget this week for the 2014/15 fiscal year that seeks to reduce the deficit to 10 percent of gross domestic product by curbing spending on energy subsidies.

Traders reached on Tuesday, a bank holiday in Egypt, said they were nervous that the law could hit the stock market when it opened on Wednesday.

"We got a shock before and we saw the effect," said Karim Abdelaziz al-Ahly Fund & Portfolio Management, referring to last month's losses after the stock market tax was announced.

One investor called the new taxes an "investor's bogeyman."

"The problem is not trading tomorrow or the day after ... the problem is with new investments. Will the taxes attract investment or repel it?" said Ehab Rashad of Mubasher for Securities.

The new law stipulates that the capital gains tax can be reduced to 5 percent in certain circumstances, including if the taxpayer owns 25 percent or more of the company.

Profits from stock market transactions in Egypt were previously tax-free.

It was not immediately clear when the new measures would take effect. (Writing by Stephen Kalin, editing by John Stonestreet and Hugh Lawson)

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