Stock market soars after capital gains tax suspended

The Egyptian Stock Exchange made its biggest daily gain since July 2013 on Monday following news that the government put a 10 percent capital gains tax on hold for two years.

The decision to suspend the law is viewed as a victory for market investors, who have protested against it from the beginning, arguing that the economy is still too unstable to introduce new taxes.

The benchmark EGX30 index gained 6.5 percent, while the small and mid-cap EGX70 index gained 7.47 percent.

For weeks, the market has risen and fallen on rumors of a suspension.

The tax was introduced in July 2014, as part of promises from President Abdel Fattah al-Sisi’s economic team to widen the tax base and introduce a more progressive taxation system. An accompanying tax on capital gains will still remain in place, according to Reuters.

The tax has met strong resistance from investors since the idea was first introduced. In May 2014, when the government first proposed taxing stock market capital gains and dividends, investors protested and the market took a nosedive.

The new taxes were delayed until July 2014, when Sisi signed them into law. Executive regulations, which define how the law will be applied, were not issued until April, and were swiftly met with a lawsuit filed by a group of investors claiming the regulations were confusing and would deter investment.

Rumors that the tax might be canceled sent the market rallying, until May 3 when the government clarified that it would review the mechanism in the tax law but not the essence of the regulations, sending the market down again.

With Monday’s shift, investors rejoiced again, sending shares up across the board. Both the EGX30 and EGX100 had to be suspended for half an hour after hitting the market ceiling of a 5 percent change in value.

Earlier this year, the government scrapped another set of rules aimed at levying higher taxes on Egypt’s wealthy. In March, the finance minister announced taxes would be capped at a unified rate of 22.5 percent, overturning a 2014 decision to introduce a 30 percent “millionaires tax” bracket for the country’s top-earning businesses and individuals.

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