Ministry of Finance aims to increase sources of finance, capital market demands tax justice

The opening session of the Capital Markets Summit discussed capital gains tax and its impact on the market. The summit touched on the hot topics of Egyptian capital markets, how the Egyptian stock exchange can meet the aspirations of the state by offering large state-owned enterprises such as the Administrative Capital for Urban Development (ACUD). He also discussed the role of capital markets in the financing of general state budget projects.

Deputy Finance Minister for Economic Affairs Sherine El-Sharkawy said the ministry was adopting a strategy of broadening the base of investments in all areas. She added that this aims to create sufficient sources of finance at the lowest cost to finance state projects and realize the aspirations of the new republic towards a decent life for the citizens.

During her speech at the opening session of the Annual Capital Markets Summit, she added that the ministry is striving to increase the rate of economic growth, as well as creating long-term debt to improve and expand options for investors in debt instruments such as local bonds. and invoices.

She pointed out that the ministry has been successful in structuring the yield curve that reflects various risks, in conjunction with successful work to reduce the cost of debt.

She expected the cost of debt to fall by the end of the current fiscal year to 32%, compared to the cost of debt reaching 36% the previous fiscal year, proving the great success by looking at the cost of debt in 2015 which reached 40%.

“In light of the pandemic, the ministry has diversified its sources of funding by issuing bonds, which has been very well received in the market, with a 3-fold oversubscription,” she added.

She explained that the ministry is also interested in the environmental aspect to follow the great development of green finance. As a result, the Egyptian government issued $ 3 million worth of green bonds.

“We expect Egypt to join the sustainability index soon due to the issuance of green bonds, especially after having linked government bonds to Euroclear in significant investment volumes,” he said. she added.

On the Islamic side, he also secured the first Islamic loan of EGP 2 billion, explaining that the interest also sparked the development of the Sukuk Sovereign Law.

El-Sharkawy revealed that work is underway on the regulations for implementing the Sukuk Law, noting that the establishment of the Sovereign Sukuk Corporation is being finalized. This is part of the offer of the first sovereign Islamic sukuk before the end of the fiscal year, explaining that the interest derives from the large size of sukuk around the world, up to $ 3.2 billion.

She explained that before the end of next January, the number of bond issues will reach 14, with an issue volume exceeding $ 24 billion, in order to maintain the great effort made by the ministry to join the JPMorgan bond index, as well as maintain the ratio. foreign investors in government treasury bills.

She also underlined the importance of capital markets for the Egyptian state as a powerful means of obtaining finance for companies. El-Sharkawy pointed out that a debt instrument clearing company is being created.

“Capital markets play an important role in attracting foreign investment to Egypt, with the IPO of e-Finance being a good example,” she added.

“The e-Finance offer required nearly a year and a half of work. I expect the government’s offers to continue at this time. This is in line with the government’s plan to offer ACUD to encourage large companies to be listed on EGX. This in turn will increase the representation of Egyptian companies in the MSCI Emerging Markets (EM) Index, which would attract foreign investment to Egypt, ”El-Sharkawy said.

The moderator of the session, Ayman Salah, asked about the messages that investment and economic policies send to the capital market, especially in relation to the government’s plan to offer its large companies.

The Deputy Prime Minister of Finance for Economic Affairs said economic and fiscal policies are very clear and the application of capital gains tax is not new in the market.

She explained that a 10% tax will be applied on the capital profits of listed companies, as well as a rate of 25% for individuals, and 22.5% for companies, stressing that the clarity of tax policies is closer to tax justice than exemption. or an ongoing tax deferral.

On the other hand, Mohamed Maher, CEO of Prime Holdings and chairman of the Egyptian Capital Markets Association (ECMA), said the daily trading volume reached around $ 400 million at the start of the creation of the capital markets. capital after the law was enacted at the end of the last century, when the government introduced the huge program of privatization of its companies, a move that stimulated the capital market at the time.

He pointed out that the capital market experienced a slowdown until 2008. He also noted that the significant drop in the number of listed companies and transaction volumes was caused by the reluctance of the state to offer companies on the stock exchange. , in addition to the gradual increases in EGX listing costs.

He added that ECMA called for tax equality and fairness between EGX traders and bank depositors, taking into account the degree of risk for each of them.

He stressed the importance of seeing the stock market as a tool to attract investment and not just as a means of increasing state tax revenues.

Responding to Mohamed Maher’s comment on the drop in the number of companies listed on EGX, El-Sharkawy said the tax is not the main reason for the drop; especially since it was applied after the drop. Taxes are also applied in all global markets and discussions are underway on what to do to boost EGX.

As for the impact of capital gains tax on the overall result, she stressed that the objective is not to increase tax revenue. In addition, the deterioration in the capital market came before the tax was applied and many companies were deregistered, including Orange and others.