Egyptian officials look to levy capital market activity for income generation


The introduction of capital gains tax on equities has been one of the more challenging areas of Egypt’s wide-ranging tax reforms. Introduced in July 2014 and implemented in March of the following year, the 10% levy was subsequently postponed for two years as a result of objections from traders and brokers – a decision which lead to criticism from the IMF.

In March 2017 the Egyptian government approved a further three-year extension of the freeze, effectively moving the issue into the next presidential term. Of the initial capital gains tax, only a levy on dividends remains. These are taxed at 10%, or 5% if a person holds more than 25% of the distributing company’s capital or voting rights, or if the shares were held for more than two years. While this will mean positive revenues for the government, it falls far short of the original ambition.

Pros & Cons

Egypt’s worsening economic situation after the 2011 revolution meant that more government revenues were necessary to meet spending commitments and address a stubborn fiscal deficit. The capital gains tax was one of numerous taxation reforms implemented by the Ministry of Finance in order to boost revenues. Moreover, as it targeted the nation’s wealthier citizens, the 10% levy on capital gains derived from stocks formed part of a broader agenda of addressing economic equality concerns.

However, the reform has not been without criticism, with the nation’s investment houses claiming that implementing new taxes at a time when investment activity was still recovering from the political and economic shocks of 2011 was unwise. A levy on capital gains, according to this view, could potentially slow Egypt’s economic growth.

 Global Issues      

The objections of Egyptian investors mirrored those of the global investment community. In January 2015, just as the Egyptian government was attempting to implement the new tax, then US President Barack Obama proposed hiking the capital gains tax rate in the US to 28% as part of a plan to boost revenues by $320bn over 10 years.

Critics of the tax believed that taxing investment income would damage economic growth by discouraging business investment, in turn, undermining workers’ incomes. Having to pay a tax on realised gains could also discourage investors from selling their assets and redirecting capital to more profitable and productive opportunities.


In regional terms, the capital gains tax debate has yet to be concluded. While most developed economies apply a capital gains tax of some form on the proceeds from stocks, bonds, precious metals and property, this is not usually the case across the MENA region. Where these types of taxes do exist, it is generally restricted to property sales or not imposed on the domestic population – as is the case with the 20% capital gains tax applied to non-residents in Saudi Arabia on the sale of shares. Egypt’s attempt to introduce a capital gains tax for domestic investors, therefore, has placed it ahead of the curve in relation to many of its neighbours.

While the further postponement of its implementation is a setback in terms of revenue generation, the authorities have still attained a more modest success in regards to tapping capital markets activity for funds. In March 2017 the Cabinet gave its approval to an amendment of the Income Tax Law which allows a stamp tax to be imposed on trades made on the capital markets. The implementation started the following May with a 0.125% levy on both the buyers and sellers of shares for listed and unlisted securities. The tax rate is expected to be increased twice, first in May 2018 when it will rise to 0.15%, and again in 2019 when a second jump will see it reach its targeted level of 0.175%. Plans for capital gains tax may be on hold until 2020, but the state has succeeded in opening up a new channel of revenue derived from capital markets activity.


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The Report: Egypt 2018

Capital Markets chapter from The Report: Egypt 2018

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