CAIRO — Egypt suspended a capital gains tax on Monday, sending shares soaring after a months-long downturn in which investors had complained of a lack of clarity about the new taxes, with some even taking the government to court.
Immediately after the announcement, Egypt's EGX 30 index rose 3.3 percent to 8562.07, according to Egypt's official news agency. By late afternoon, shares were up 6.5 percent.
President Abdel-Fattah el-Sissi approved a law nearly a year ago which placed a 10 percent tax on capital gains, fueling a sell-off by investors in an economy already battered by years of political unrest since the 2011 uprising.
The law had been part of a broader government effort to broaden the tax base as it pushed through a host of tough measures, including slashing fuel subsidies, amending the property tax law, imposing a 10 percent tax on stock dividends and allowing the Egyptian pound to devalue somewhat against the dollar.
The suspension of the tax "more or less reflects the difficulty of maneuvering through structural reforms," said Mohammed Abu Basha, an economist at regional investment giant EFG Hermes. "They had a huge list of things they need to do to fix the economy."
Egypt's economy has been reeling since the 2011 uprising that ousted longtime autocrat Hosni Mubarak.
Foreign investment dried up — from a high of $13 billion in 2007-2008, it plunged to $2.2 billion after the uprising. Tourists -- one of Egypt's main sources of revenue -- fled, while growth rates fell from more than 7 percent before the uprising to around 2 percent after Mubarak's ouster.
Now the government is trying to send the message that it's open for business.
It hosted an international investment conference in March that saw billions pledged to boost the economy. El-Sissi has launched a series of ambitious mega-projects, including announcing plans to build an entirely new capital city to relieve congestion in Cairo and developing industrial zones around an expanded Suez Canal.
Ratings giant Standard & Poor's revised its outlook on Egypt from stable to positive last week in light of "a stabilizing political landscape and growth-supporting reforms." It projected real GDP growth of around 4.3 percent between 2015-2018, more than double the 2.1 percent average in 2011-2014.
Cabinet spokesman Hossam el-Qaweish said Monday's decision to suspend the capital gains tax was aimed at preserving the "competitiveness of the Egyptian financial market." He said the measure is part of ongoing efforts to undertake economic reforms while taking into consideration their impact on the investment climate.
The government took nearly 10 months after passing the capital gains tax last year to issue executive regulations explaining how the tax would be collected, a delay that caused uncertainty in the market. At the time the law was passed, experts said the tax was hardly explained to investors.
Earlier this year the Egyptian Association for Financial and Investment Studies and a separate group of investors filed lawsuits in two different courts calling for changes to some parts of the law, saying that the tax constricted the movement of the stock market and caused major losses to investors, state media said.
Traders at Egypt's stock market on Monday were optimistic about the tax suspension.
"What's expected after suspending the tax, is the market will strongly rally. Investors who were getting out of the market will come back," said trader Heba Raafat.