CAIRO - Egypt has dropped plans to levy a tax on share dividends, will not revive it this year and is looking for ways to reduce planned expenditure as a result, the Finance Minister said. The Government dropped the planned tax after strong opposition from investors. Egypt's benchmark share index suffered its biggest decline in six weeks last Thursday after the tax was unveiled in the draft 2011/12 budget. "We never had a plan to impose a capital gains tax in the traditional sense. All we discussed is a tax of 10 per cent on distributed gains from the stock exchange, on dividends," Finance Minister Samir Radwan told Reuters by telephone. "For the time being, we are not imposing this tax so that we encourage the stock exchange." He ruled out reviving the idea of a dividend tax later this year. Asked how the Government would compensate elsewhere in the budget for dropping the dividend tax, Radwan said: "I am trying to see if we can reduce expenditure somewhere." Cancelling the tax "takes into account the circumstances of the Egyptian economy and the need to attract more foreign investment which would create more job opportunities and increase Egyptian gross domestic product and boost economic growth," the stock exchange said in a statement. "The decision has come in an appropriate time. This could attract much more foreign investments," Abdel Salam was quoted by the official Middle East News Agency (MENA) as saying. Radwan defended the principle of the tax, saying: "This is a normal tax all over the world, even in a country like Saudi Arabia. In Europe the rate is around 15 to 20 per cent". The cabinet decided to drop the tax in a meeting on Wednesday to approve the budget. The draft budget also included a higher income tax applied to companies that earn 10 million pounds or more. Businessmen and investors have criticised the planned capital gains tax, saying it would discourage much-needed investment at a time when the economy is suffering the fallout of a popular uprising.
