Egypt Studies Gradually Increasing Tax on Stock Trades

(Bloomberg) -- Egypt is weighing a gradually increasing levy on stock trades and a tax on some bond transactions to help close one of the Middle East’s largest budget deficits.

The stamp duty on bonds would apply to transactions in the secondary market, Minister Amr El-Garhy said in a phone interview on Thursday, without disclosing specifics. The stamp tax on stocks may start at 0.125 percent for both buyers and sellers, increasing to 0.15 percent and 0.175 percent in the second and third year, he said.

The proposal hasn’t been finalized and may be submitted to the cabinet for discussion as early as next week, he said on Wednesday.

News about the levy was blamed for the 5.8 percent drop in the benchmark EGX30 stock index last month, reversing the rally triggered by the Nov. 3 flotation of the pound. El-Garhy said in January the tax will be small enough to ensure demand for the country’s equities remains strong.

Stocks rallied on Thursday, climbing 2.5 percent at 2:15 p.m. in Cairo, the most on an intraday basis since Dec. 20.

Egypt is trying to attract investors to its financial markets to help revive an economy hit by years turmoil since the 2011 ouster of former President Hosni Mubarak. In addition to abandoning currency controls, it raised fuel prices in a successful bid to secure a $12 billion loan from the International Monetary Fund, the lender’s largest in the region.

The government is also trying to narrow its budget deficit to about 10 percent of gross domestic product in the current fiscal year ending June 30, from about 12 percent last year. It narrowed to 5.4 percent for the second half of 2016 from 6.4 percent a year earlier, according to the latest Finance Ministry data.

To contact the reporters on this story: Abdel Latif Wahba in Cairo at alatifwahba@bloomberg.net, Alaa Shahine in Dubai at asalha@bloomberg.net, Ahmed Feteha in Cairo at afeteha@bloomberg.net.

To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Stuart Biggs, Kevin Costelloe