Egypt's stock market finished Thursday on a 2.65 per cent decline, in what analysts see as a result of a new capital gains tax announced by the government the previous afternoon. The benchmark EGX30 index dropped to 5,361.8 points. Of 184 listed stocks, 25 gained and 151 declined, with all sectors closing in the red. Minister of Finance Samir Radwan announced on Wednesday that Egypt will introduce a 10 per cent tax on capital gains and a 5 percentage point increase in income tax levied on corporations and individually-owned companies. The higher income tax will be applied to companies that earn LE 10 million or more, a cabinet statement said. The decision, ambiguous as it is, has triggered anger among traders and investors in the stock market. "The new tax law couldn't have come at a worse time," says financial expert Hesham Tawfiq. "Applying the tax will diminish the market's attractiveness." "The country is already unstable and the gains the new tax will bring are far smaller than the adverse effects on the market," he adds. Ashraf Abdul Aziz, head of institutions sales at Arabia Online,agrees with Tawfiq on the negative effect the tax announcement will have on the market. But he thinks other factors also affected Thursday's session. "First, the surge the market has witnessed lately was to a great extent driven by the shares dividends paid by large companies listed on the Bourse, especially in the cement sector," says Abdul Aziz. In April, Egypt's Alexandria Cement approved a LE1.73 ($0.3) per share cash dividend. "The second possible reason is the fall of the Dow Jones index, which led to foreigners rallying to sell," he adds. The Dow Jones index fell sharply by 2.2 per cent on Wednesday after reports raised new doubts about the strength of the US economy. Today, foreign traders made a weaker showing, representing about 22 per cent of the market with a net selling value of LE69.3 million. Egyptians, on the other hand, were net-buyers making up 71.3 per cent of the market. Analysts expect a further decline in Egypt's bourse over the next days. “At a time when companies' performance is deteriorating, it [the market] is facing competition from neighboring markets; such a tax will only worsen the Egypt's struggle.”Says Hany Sary El-Din, CBE board member told Ahram Online. “I expect a decline of prices on the short term; until July when the tax is actually applied”he adds.
