FinMin looks to cushion the blow of the FX crunch on firms’ pre-float earnings: The Finance Ministry is considering issuing a bookkeeping scheme to account for the FX rate difference between the official and parallel markets for profit earned before the Central Bank of Egypt liberalized the exchange rate in March 2024, with the ministry currently preparing tax budgets for the upcoming corporate tax filing season — which ends on 30 April, a government source told EnterpriseAM.

What the decision would entail: The accounting scheme will augment FX costs booked by companies throughout 1Q 2024 by a rate of up to 60%, which was set based on currency averages and forward contracts from that period, our source said. They added that the decision could also help prevent the accumulation of new tax-related issues and reduce the gap in tax assessment differences for firms in the market.

Refresher: The Finance Ministry last year issued a decision to change the way businesses calculate their foreign exchange costs to determine their tax base, seeking to account for the price differences between the FX rates on the official and parallel markets throughout 2023, with a specific emphasis on firms whose operations necessitated the use of foreign currency — particularly importers and exporters.

The accounting scheme at the time augmented FX costs booked by companies throughout 2023 by varying percentages based on FX price points over the year, starting at 9% for the period from January to April 2023, increasing to 24% from May to August, rising further to 34% in September and October, and reaching its highest level in November and December at 60%.

The decision would require coordinated tax and monetary policies to ensure that taxpayers don’t have to obtain statements from the CBE regarding shipments for which FX was secured, Federation of Egyptian Industries’ tax committee head Mohamed El Bahy told EnterpriseAM. Some taxpayers still face issues regarding their tax filings from 2023 due to this requirement, with some banks refusing to provide businesses with the statements needed to allow them to benefit from the Finance Ministry’s decision, El Bahy said.

Remember: The Finance Ministry unveiled in October the first phase of a package of taxfacilities aimed at simplifying the tax system and easing the burden on taxpayers. The package introduces 20 key reforms all revolving around four primary goals — easing tax and financial burden on taxpayers, unifying and improving tax services, and clearing the backlog of tax disputes.

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