* Some assets exempted, threshold raised on cash dividends
* Stock market recoups some losses made since 10 percent tax
* Gulf investors may grumble, but effects seen short-term -
(Adds minister comment, analyst comment, market reaction)
CAIRO, June 2 Egypt has watered down a tax on
stock market gains it announced last week as part of efforts to
trim a high budget deficit, after the country's bourse recorded
its biggest daily drop in almost a year on Sunday.
Beset by more than three years of economic and political
turmoil since a popular uprising ousted Hosni Mubarak in 2011,
Egyptian authorities are trying to steer a course between
boosting state revenues while not discouraging investment.
Finance Minister Hany Dimian announced the new 10 percent
tax on dividends and on gains on share transactions on Thursday
, drawing an uneasy initial response from the
The main share index closed down 3.5 percent on that day
and, after the two-day market break, it fell a further 4.2
percent on Sunday.
"They are increasing budget revenues, (and the) initial
reaction from investors is largely negative. (But) fiscal
sustainability and government efforts to balance the budget ...
will be positive in the long term," said Moheb Malak, economist
at Prime Securities.
The budget deficit hit 14 percent of economic output in the
last fiscal year and it is set to stay high at around 12 percent
in the current and the coming fiscal year starting on July 1.
"They should be panicking about the deficit, it deserves
panicking, but it's good that they're taking action. Nobody
expected steps to lower the deficit to be popular," Malak said.
Authorities have now sugared the fiscal pill slightly,
helping the market recoup some of its losses on Monday.
The finance ministry had initially set an annual tax-free
limit of 10,000 Egyptian pounds ($1,400) on cash dividend
payments for individuals resident in Egypt.
Financial Supervisory Authority head Sherif Samy told
Reuters late on Sunday the tax threshold would be raised to
15,000 pounds. In another, earlier amendment, Finance Minister
Dimian said dividends paid in shares would be tax-exempt.
'BOUND TO HAPPEN'
Ahmed Hafez, co-head of equity research at HC Brokerage in
Cairo, said the announcement of the new tax had lacked clarity.
"What exactly the tax will look like has led to confusion among
market participants in general," he said.
Dimian estimated late on Saturday that the tax would raise
between 3.5 and 4.5 billion Egyptian pounds.
It is part of a broader package of fiscal reforms announced
in conjunction with last week's presidential election.
Abdel Fattah al-Sisi, the general who toppled the country's
first freely elected leader - Islamist Mohamed Mursi -
following mass protests, has taken more than 90 percent of the
vote, according to results that are still provisional.
Profits from stock market transactions in Egypt are
currently tax-free, a situation Allen Sandeep, head of research
at Naeem capital, said could not last forever.
"The timing might not have been ideal... but a capital gains
tax was bound to happen like in any other market," he said.
"It might affect investments from (the Arab Gulf). They
might be a little bit disappointed with the capital gains tax,"
Sandeep said, adding any negative impact would likely be
Gulf investors repatriating such profits generally do not
have to pay tax at home. Several Gulf governments have helped
prop up Egypt's finances during the political crisis with aid
and soft loans.
After news of the amendments to the tax, Egyptian shares
were up as much as 2.8 percent on Monday. According to bourse
data, local and retail investors were net sellers while
institutions and foreigners were net buyers.
Investment and Industry Minister Mounir Fakhry Abdel Nour
told reporters the draft tax bill had been sent to the
presidency for approval and was expected to be signed into law
($1 = 7.1504 Egyptian Pounds)
(Reporting By Ehab Farouk and Shadia Nasralla; Writing by
Shadia Nasralla; editing by John Stonestreet)