(DNE Photo)
The cabinet has approved the draft law that exempts banks’ provisions, funds set aside by banks to cover potential losses, from taxes, according to an official statement issued by the ministry of finance.
The draft law is now awaiting presidential approval to be officially issued.
Minister of Finance Ahmed Galal said the draft law eliminates the amendment introduced by Law No. 11 of 2013 on the banks’ provisions taxes, returning to the initial draft bill, which exempted 80% of loan provisions from taxation.
Hesham Shawky, the head of investment sector at the Arab Investment Bank (AIB) said applying income taxes on provisions meant that the government had aimed to “apply taxes to uncollected profits.”
“The annulment is definitely something positive. The taxes on banks’ provisions added financial pressures on banks by adding taxes on income that has not yet been made,” Shawky said.
“The amendment of the income taxes on provisions will reflect the true amount of net incomes that banks make,” he added, when commenting on how the cabinet’s approval would reflect on Egyptian banks.
The draft o f the provisions tax law was originally proposed by a Freedom and Justice Party member of the Shura Council, and was emblematic of the lack of coordination between governmental institutions, as Governor of the Central Bank Hisham Ramez publically announced that he was not consulted prior to the ratification of the bill.
Osama Al-Manyalawy, deputy treasury manager at the Arab Banking Corporation (ABC), said that the government was looking for a source to finance the budget deficit, leading it to claim that banks had overestimated provisions to avoid paying taxes.
“This is not true. Banks are audited by companies that revise the provisions levels and are able to determine whether a bank is overestimating or underestimating its provisions,” Al-Manyalawy said. “Even if [the notion that banks were overestimating provisions] was true, it would be applied by one or few banks and the government should have not punished all banks on that basis.”
Instead, Al-Manyalawi said, “this resulted in duplicating taxes,” calling the law “an unfair decision.”
Following heavy criticism for the banking sector, the Ministry of Finance and the Central Bank of Egypt reached a mutual agreement to amend the tax law last June. The combined total of provisions in the Egyptian banking system exceeds some EGP 57bn.
