LEGISLATION WATCH- House is shopping around legislation to tax social media ads: A draft law to tax Egyptian advertisers for their social media spends apparently exists and is already floating around in the House of Representatives, MPs tell Egypt Independent. The proposal would tax both paid and unpaid ads (how that last bit would work is beyond us) on social outlets including Facebook and Google, House ICT Committee deputy chair John Talaat said. “The draft law is still under discussion and people are still working out the methodology of its application and implementation,” he said. Talaat claims the bill has wide support in the House.

Gov’t and House are on the same page on this: Government sources had told us earlier this month that the Tax Authority is looking at imposing VAT on online ad buys and e-commerce transactions. In parallel, it is looking at ways of charging VAT on online ad sales by both domestic players and global giants such as Google and Facebook. “Facebook and social media websites don’t have platforms in Egypt, so the government has found it necessary to impose their control and collect taxes from Egyptian companies which choose to advertise on those websites,” says Talaat.

Yeah, paying taxes is not fun. But as longtime readers know, the only thing that bothers us more than shelling out are the cheats who don’t pay their share. The online set is grumbling about the Madbouly government aiming to collect VAT on online purchases. We don’t understand why the special snowflakes who hawk their wares online should be VAT exempt in the first place, and neither does the US Supreme Court. The top court in the United States ruled last week that “internet retailers can be required to collect sales taxes even in states where they have no physical presence.” The same logic, we think, should also see multinationals such as Google and Facebook charging VAT on taxable services in Egypt.

This isn’t the first time the House has maneuvered to get hands on social media activity: Earlier this month, our representatives passed the second part of the Press and Media Act, which subjects social media accounts with more than 5k followers to new regulation.

Meanwhile, the new Leasing and Factoring Act imposes VAT on lease contracts: The Leasing and Factoring Act, which the House of Representatives approved on Saturday, revokes VAT-exempt status previously granted to lease contracts, according to Al Mal. Several leasing companies have come out strongly against the imposition of the tax, CorpLease General Counsel Salah Youssef tells the newspaper. Tax exemptions were one of the primary perks of using leasing as a non-banking financing tool, and imposing taxes on these contracts will likely slow industry growth, Youssef added.

EXCLUSIVE- This comes as the taxman looks to collect as much as EGP 6 bn from Uber and Careem in retroactive VAT payments for the last two years. Government sources tell us that tax officials should have a final figure within two weeks once they’re done reviewing paperwork filed by each company in the two years since the VAT came into effect. The Tax Authority had issued a directive last week that requires ride-hailing apps to begin charging VAT on the portion of revenue they take from each ride. While it left the tax treatment on the drivers’ share of the profit unchanged, the directive mandates ridesharing companies to pay a retroactive VAT of 13% on their own share of revenues from September 2016-June 2017 and 14% VAT on everything from July 2017 onwards.

Uber may be subject to different tax treatment, the sources said, explaining that unlike Careem, which is licensed as an Egyptian company, Uber operates in Egypt as a foreign entity subject to another country’s tax regime. Uber officials reportedly promised to deliver the documents once they coordinate with their parent company, while Careem officials should sit down with tax officials this week to hand over the paperwork, we’re told.

In other industry news: Car service companies are reportedly suing Uber for allegedly cutting their drivers. A number of car service companies are said to have filed lawsuits demanding financial compensation from the ride-hailing company after it terminated agreements that had incorporated their drivers in its fleet. Nabil Abdel Nour, the owner of Fourat and Nile Company for Limousine Services and Grand Limousine, alleges Uber let go of around 4,000 of his drivers. He claims that his work for Uber over the past 18 months was worth EGP 18 mn. 1st Car is also suing Uber for letting go of around 700 drivers. Uber, which had contracted car service companies when it launched in Egypt, appears to be shedding them as its fleet grows. The move comes as a provision of the recently passed Ride-hailing Apps Act forces the two to find a way to incorporate white cabs into their fleets.

White cab owners, meanwhile, plan to launch by early August a rival ride-hailing app dubbed Professional Taxi, White Taxi Association Head Mamdouh Abdel Hamid tells Al Mal. The would-be competitor’s strategy appears to be undercutting Uber and Careem by taking a commission on fares that would be as little as a fifth of what Uber takes today.

LEGISLATION WATCH- And speaking of the Ride-Hailing Act: President Abdel Fattah El Sisi has signed it into law, Youm7 reports. The law, passed by the House of Representatives last month, had initially stirred up controversy over government access to private user data. The bill was then toned down to allow access to the authorities on a case by case basis as opposed to granting them access to real-time user data. The final text of the law was published on the Official Gazette on Sunday.

El Sisi also signed into law amendments to the Industrial Development Authority Act granting the IDA financial and administrative independence from the Trade and Industry Ministry. The changes also make it responsible for allocating land, permits and licenses to industrial ventures. The law was also published in the Official Gazette yesterday, according to Youm7.

El Sisi also signed off on the Social Housing and Mortgage Finance Support Act. Under the new law, the Social Housing Fund and the Mortgage Finance Fund will be merged into a single entity to streamline mortgage financing procedures. The law also sets a framework for the pricing of land and state-subsidized housing, as well as the services that residents in those projects have access to.

The President also ratified the Food Cart Act, which governs permits, equipment, location, and food safety standards. It also subjects cart owners to an annual licensing fee.

FinMin committee to begin reviewing fuel hedging offers in July: A Finance Ministry committee tasked with studying offers for mechanisms of hedging against fuel price hikes will reportedly convene for the first time in early July to begin its review, a government source tells Al Shorouk. We reported earlier this month that the ministry received offers from seven international banks and institutions looking to provide Egypt with fuel hedging solutions amid upward pressure on oil prices. Sources had told us that the committee could take up to two months to complete its work and may select more than one provider based on the best average cut-off price and repayment terms offered. The Oil Ministry is currently conducting a thorough study to determine the market’s average fuel needs over the coming year, which should help the committee with its decision. The contracts are likely to span 2-3 years, according to the source, who adds that the Madbouly Cabinet is also considering hedging against wheat price fluctuations.

Background: The finance and oil ministries were given the green light to begin talks on hedging contracts with international banks amid rising global oil prices. Next year’s state budget assumes an average price of USD 67/bbl, but Brent crude had broken the USD 80/bbl last month before falling back to a USD 75/bbl average. OPEC and non-OPEC member states agreed over the weekend to increase oil output as of July by 1 mn bpd, a move widely expected to ease upward pressure on prices.

The Madbouly government is working to insulate beneficiaries of its subsidy programs from rising food prices in the wake of last week’s fuel subsidy cuts. The government will pay 15% more for transport providers who haul the food and petroleum products it buys under the subsidy program after recent fuel price hikes, Social Solidarity Minister Ali El Moselhy said, according to Al Ahram. El Moselhy said the government will effectively absorb the new cost to transport companies to maintain prices of subsidized goods. The ministry will also be covering the difference in the cost of subsidized bread, which sources previously said would cost state coffers and additional EGP 5 bn, as well as the transport of wheat.

Food prices in the private sector could rise 3-7% over the coming months on the back of higher fuel costs, the government has previously said. Other goods and services such as construction and building materials, cars, and electronic appliances have also risen in price. Public transport services including buses, white cabs and Ubers have also seen prices increases over the past week in response to the government’s decision to raise fuel prices by c. 50%. The hike is the third since the government signed a USD 12 bn Extended Fund Facility agreement with the IMF in 2016.

BUDGET WATCH- Parliament signed off yesterday on a EGP 70.3 bn overdraft for the FY2017-18 state budget, Ahram Gate reports. The overdraft was in large part necessary to cover higher debt service rates, which alone account for EGP 57 bn. Other expenditures included EGP 2.3 bn in compensations to North Sinai residents as a result of the insurgency in the area. Parliament’s report on the overdraft makes no mention of higher fuel prices, which Finance Minister Mohamed Maait had previously told Enterprise were a reason the government had requested the overdraft.

Parliament also approved extending the state of emergency for an additional three months, Al Masry Al Youm reports. The state of emergency has been renewed every three months since April 2017.

MPs also approved several loan and grant agreements over the weekend, the Investment and International Cooperation Ministry said (pdf), including:

• A USD 3 bn agreement with the International Islamic Trade Finance Corporation to finance the purchase of basic goods and commodities, which Investment Minister Sahar Nasr signed in January;
• A thirdUSD 500 mn tranche of the USD 1.5 bn loan the African Development Bank is disbursing as part of its economic governance and energy support program to Egypt;
• A USD 200 mn loan the European Bank for Reconstruction and Development is extending to EGAS to improve natural gas infrastructure;
• A USD 150 mn loan with the African Development Bank to develop a sustainable development project for Abu Rawash sewage treatment plant;
• AUSD 50 mn grant from the United States to support integrated water solutions.
• Three agreements with the US worth a combined USD 44 mn for education development;
• A JPY 993 mn (USD 8.8 mn) grant agreement from Japan for the Egypt-Japan University of Science and Technology;
• A USD 6 mn grant from the Korea International Cooperation Agency to fund an Egyptian-Korean university in Beni Suef;
• A EUR 500k technical grant for transport development from the French Development Agency.

Hassan Allam consortium wins contract for USD 4.4 bn Hamrawein ‘clean coal’ power plant on the Red Sea: A Chinese consortium of Hassan Allam Construction, China’s Shanghai Electric and Dong Fang has won a USD 4.4 bn contract from the Egyptian Electricity Holding Company (EEHC) to build a 6 GW clean coal power plant on the Red Sea. The facility will be the largest coal-fired plant in the Middle East and Africa when it comes online six years from the start of construction, we’re told. Egypt’s first coal power plant will include six generation units of 1,000 MW each. Hassan Allam Holding subsidiary PGESCO will be carrying out a large portion of the engineering work on the project, sources close to the winning bid tell us. The consortium edged out rival bids from General Electric and a Mitsubishi-Hitachi-Orascom-Sewedy consortium for the contract. The Hamrawein plant will be built on an engineering, procurement, construction plus finance (EPC+F) basis, MEED reports.

Parent company is planning IPO: Hassan Allam Construction is a division of Hassan Allam Holding, which we reported in May has plans for an initial public offering this fall. EFG Hermes and Renaissance Capital are said to be leading the IPO as joint global coordinators, while Arqaam Capital has been tapped as bookrunner.

M&A WATCH- Pharos was sell-side adviser on the sale of NPP to Mondi: Our friends at Pharos Holding were sell-side advisors on the sale of 100% of National Company for Paper Products (NPP) to Mondi Group for USD 29 mn (EGP 510 mn), the firm said in a statement on Sunday (pdf). The sale of the provider of the Kraft paper bag packaging to London- and Johannesburg-listed Mondi highlights the appeal of Egyptian industry to foreign investors, the firm said. “Investor sentiment towards Egypt is turning positive and continues to improve as Egypt reaps the benefits of its economic reforms,” said Pharos Managing Director and Co-CEO Aladdin El-Afifi. Al Tamimi and Co. were the legal advisors on the transaction.

The CBE is in talks with Afreximbank for a USD 500 mn loan that will be geared toward funding trade and imports as well as SME financing, an unnamed source from Afreximbank tells Al Shorouk. If it comes through, the facility would be yet another sign that the international finance institutions are willing to lend substantial sums to the country. The Egyptian Electricity Holding Company recently borrowed USD 900 mn in a syndicated loan. Other recent loans of a considerable size include USD 600 mn to the National Bank of Egypt and an upcoming USD 500 mn loan to Banque Misr. The CBE had made the final payment on its total USD 3.7 bn debt to Afreximbank earlier this month.

MOVES- Hanafi El Gebaly has been named the next chief justice of the Supreme Constitutional Court, the nation’s highest court, Al Masry Al Youm reports. El Gebaly, currently the court’s first deputy chief justice, replaces chief justice Abdel Wahab Abdel Razek Hassan.

CORRECTION- No, Eni is not allocating 70% of its global investment to Egypt: Widely circulated news in the domestic press last week claiming Eni will earmark 70% of its global investment to Egypt is not true, sources from the company told us yesterday. The story was corrected on our website.

CLARIFICATION- We over-reached with our assertion yesterday that Abraaj has sold key funds to Tom Barrack’s Colony Capital. We should have written that “Abraaj has agreed to sell” the funds. The transaction is still subject to certain conditions precedent and to limited partner approvals, a friend at Abraaj tells us.