Egypt has officially lowered its income tax rate for individuals and companies from 25 percent to 22.5 percent, scrapped an added 5 percent tax on the country’s highest earners, and suspended a 10 percent tax on capital gains.
The publication of an amended tax code in Sunday’s Official Gazette confirmed announcements made earlier this year. The reduced tax ceiling was announced in March, while the capital gains tax suspension was announced in May.
“There were no surprises,” said Mohamed Abu Basha, an economist at investment bank EFG-Hermes, regarding the newly issued law.
The only notable change from previous announcements was an increase in the amount of earnings exempt from taxation, according to Abu Basha. People earning up to LE6,500 a year will not be required to pay income tax, a boost from LE5,000 under previous tax codes.
This level of exemption still means that people earning less than half of the official public sector minimum wage of LE14,400 per year will be subject to income taxes, but will result in tax savings for the lowest earners.
Under the new tax system, a 10 percent tax will be levied on annual wages from LE6,500 to LE30,000. Earnings ranging from LE30,000 to LE45,000 will be taxed at 15 percent, and earnings from LE45,000 to LE200,000 per year will be taxed at 20 percent.
The highest bracket, starting at LE200,000, is capped at 22.5 percent.
The previous top tax rate for individuals and businesses stood at 25 percent.
The amendments published Sunday also officially scrapped a “millionaire’s tax” that tacked on an additional 5 percent in taxes for the highest-earning businesses and corporations. Signed into law in 2014 by interim President Adly Mansour, the tax was initially supposed to be in place for three years. The amendments published this week reduce the tax’s validity to just one year, meaning it has already expired.
Sunday’s Official Gazette also formally confirmed the suspension of a 10 percent tax on capital gains.
Originally announced in July 2014 as part of a parcel of promises from President Abdel Fattah al-Sisi’s economic team to widen the tax base and introduce a more progressive taxation system, the law was put on hold after investors protested and the stock market took a nose dive.
This week’s amendments to the tax law also call for any capital gains taxes collected between May 17 and Sunday to be reimbursed to investors.
In the wake of the 2011 revolution, campaigners called for a more progressive taxation system that shifted a greater burden of taxes onto those more able to pay. At times, government policy followed this trend. In 2013, the tax rate for the top tax bracket for individuals and businesses increased from 20 percent to 25 percent, with the 2014 millionaire’s tax adding another 5 percent for the wealthiest.
More recently, tax policy has appeared to be aimed at improving domestic business sentiment and encouraging foreign investors. The initial announcement that the tax rate would be capped at 22.5 percent came in the lead-up to the Egypt Economic Development Conference in Sharm el-Sheikh.
“All over the world, countries are cutting their tax rates,” said August Blair, founder of economic think-tank Signet Institute. “It’s a competitive world, and Egypt needs to stay competitive.”
Although there is little new in the law, analysts say its publication comes as good news for investors, who have waited for months for the details of the new tax policy to be confirmed.
“The main issue is clarity,” said Blair. “It means companies can make better forecasts.”
“It’s obviously a relief that the law was released,” echoed Abu Basha.