{"id":595548,"date":"2019-09-30T04:13:12","date_gmt":"2019-09-30T04:13:12","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/2019\/09\/30\/spotlight-on-the-fifth-legislative-session-of-the-house\/"},"modified":"2019-09-30T04:13:12","modified_gmt":"2019-09-30T04:13:12","slug":"spotlight-on-the-fifth-legislative-session-of-the-house","status":"publish","type":"post","link":"https:\/\/enterpriseam.com\/egypt\/2019\/09\/30\/spotlight-on-the-fifth-legislative-session-of-the-house\/","title":{"rendered":"Spotlight on the fifth legislative session of the House"},"content":{"rendered":"

<\/a> The House of Representatives will reconvene for the fifth legislative session on Tuesday, 1 October.<\/b> This will be the final legislative cycle before parliamentary elections are held at the end of 2020.<\/p>\n

We maintain a legislative tracker that keeps tabs on bills <\/b>the government could introduce, with a heavy focus on business and economy-relevant legislation. Here\u2019s what we expect this fall and winter:<\/p>\n

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TAXATION- The Madbouly Cabinet looks to continue making significant changes to the tax system in the coming months <\/b>as it pushes ahead with amendments to the VAT and Customs acts. There have been suggestions the Income Tax Act itself could be brought before MPs for changes, but it is still unclear if this will be ready during the current legislative cycle. All in all, we expect plenty of changes on the tax front this session.<\/p>\n

VAT Act changes:<\/b> A number of officials have told us this year of plans circulating in the ministry to impose VAT on digital businesses, including social media<\/a>, online search ads, and download sites<\/a>. A source told us in August that the government could place a 5-10% schedule tax<\/a> on social media and internet search ads on top of the standard 14% VAT rate. Maait said in July<\/a> that the ministry is looking to amend the VAT Act, assuring us that no changes will be made to the headline rate. While nothing is graven in store, expect the VAT to be a key part of the legislative agenda over the coming months, with public hearings and a review by House representatives expected to take place during the current legislative cycle.<\/p>\n

Customs Act amendments:<\/b> Long-awaited changes to the Customs Act are expected to make a comeback<\/a> during the fifth legislative cycle after the government requested that the bill be withdrawn and amended further. The amendments could expedite clearance through a white list of importers and a revamped system of temporary clearances. They could also broaden the powers of customs clearance agents as well as provide an alternative pathway to settle customs disputes.<\/p>\n

New incentives for EGX listings:<\/b> Plans to introduce new incentives for companies to list on the EGX are currently in the drafting phase and reportedly close to being finalized by the ministry, we learned last month<\/a>. Egyptian companies would see their tax bill cut in half for seven years if they list 35% or more of their shares on the exchange. Finance Minister Mohamed Maait is expected to review the package in the coming weeks.<\/p>\n

Plans afloat to bring back capital gains tax:<\/b> Sources told Enterprise in July<\/a> of plans to restore the 10% capital gains tax (CGT) on gains made trading EGX-listed shares; the measure has been suspended and is currently scheduled to come into effect in May 2020. Resident investors could enjoy full exemptions from the CGT and stamp tax under a proposal now in the works, while non-residents would see stamp tax reduced to 0.1% from 0.15%. The proposal still seems to be with the cabinet, but sources said that it would be introduced to the House in the coming legislative cycle.<\/p>\n

Unified tax payment system:<\/b> A draft bill to reform the tax payment system was approved by the cabinet in July<\/a> and is now awaiting parliamentary review. The legislation would establish a single system for filing returns for income tax, stamp duty and VAT, as well as billing for and paying tax.<\/p>\n

SMEs Act:<\/b> Progress on the government\u2019s flagship legislation to convince the informal economy to go legit has been slow this year, with the Finance Ministry originally hoping to pass the bill<\/a> to the House in 2018. Inter-ministerial negotiations over the shape of tax incentives ground on until April<\/a>, when we got word that the finance and trade ministries had finally agreed on a package. The Council of State approved the bill<\/a> and sent it to the cabinet in June. We currently understand that the act will include tax and non-tax incentives, including exemptions from the stamp tax as well as the fees to register contracts to set up companies and credit facilities for five years from the commercial registration date. SMEs would also be exempt from land registration fees for their projects, among other things. The act will set up a tier system based on an SME\u2019s revenues that would set a flat tax<\/a> for each tier. These flat rates will be reassessed every three years.<\/p>\n

One big note: <\/b>When the government says \u201cSME\u201d legislation, it\u2019s generally talking about folks who play at the low end of the \u201csmall\u201d in SME.<\/p>\n

On the subject of SMEs:<\/b> The FRA is looking to make SME-dedicated lenders subject to the 2014 microfinance law<\/a> in a series of new amendments approved by the regulator in May. The changes would also introduce a new EGP 20 mn capital requirement for SME lenders. The Central Bank of Egypt granted the first license to a SME lender<\/a>, CDC Group, in June. Amendments to make this law currently sit with cabinet for approval.<\/p>\n

Open questions:<\/b><\/p>\n

Will we see a new Income Tax Act this legislative cycle?<\/b> Finance Minister Mohamed Maait announced<\/a> that the government had begun working on a new income tax law at the end of July, and an initial draft was finished<\/a> towards the end of last month. Not much is known about what the ministry is proposing, but Tax Authority head Abdel Azim Hussein told Enterprise that the bill will amend the procedure for filing tax returns, change how tax appeals are handled, and reform the ministry\u2019s internal tax committees. Maait has explicitly ruled out tinkering with tax rates, but the Cairo Chamber of Commerce is pushing for the ministry<\/a> to raise the nil-rate band to EGP 24,000 per year, from a current EGP 8,000. The draft is now being sent for public consultations before going to the cabinet, but a government source tells us that no fixed deadline has been set for when the legislation will make it to the House.<\/p>\n

Amendments to the Universal Healthcare Act: <\/b>The Finance Ministry is considering making further changes to the Universal Healthcare Act that would set an across-the-board limit on the healthcare tithe paid by businesses to fund the new universal healthcare system, two government sources told Enterprise earlier this month<\/a>. The amendments would see businesses pay the 0.25% levy on revenues, but the payment would be capped at EGP 10,000, regardless of the size of the company or its revenues.<\/p>\n

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BUSINESS AND ECON- You can expect the regulatory framework for finance to change<\/b> significantly<\/b>, with amendments to the Banking Act expected to make their way to the House. Sweeping changes to the insurance landscape are also in the cards with the coming of the new Insurance Act, which could expand the powers of the Financial Regulatory Authority as the sector\u2019s regulator. And speaking of the FRA: Look for it to be made an autonomous agency this legislative cycle. Meanwhile, consumer finance is expected to be regulated for the first time, and you can expect legislation regulating \u201cnew\u201d industries including medical tourism and electric vehicles.<\/p>\n

Banking Act:<\/b> Legislation granting the Central Bank of Egypt increased oversight of the banking sector and strengthened corporate governance regulations has been in the works for a while now and finally made its way to cabinet in May<\/a>. Probably the biggest revelation this year was the news that the legislation could impose strict new capital requirements<\/a> on domestic and foreign banks, as well as foreign exchange bureaus. Commercial banks could be forced to hold 10x more (EGP 5 bn) in their capital reserves, while foreign banks may see their requirements triple to USD 150 mn. The act will also impose term limits on board members at state-owned banks<\/a> \u2014 not on managing directors as was rumored earlier this year<\/a> \u2014 as well as introduce new licensing requirements for crypto businesses<\/a>. The bill was expected to enter the House at the end of May but as far as we know is still being reviewed by the cabinet.<\/p>\n

Insurance Act:<\/b> New legislation giving the Financial Regulatory Authority (FRA) oversight over the insurance sector has been in the pipeline since 2018, and has been in the consultation stage for much of 2019. From what we know so far, the act would grant<\/a> the FRA significant new powers over licensing, business formation and board composition, and monitor bank deposits<\/a>. Provisions to raise minimum capital requirements<\/a> by as much as 733% remain intact, much to the chagrin of insurance companies which came out against the proposals<\/a> earlier this year.<\/p>\n

New mandatory insurance covers: <\/b>Recent amendments to the legislation would make insurance mandatory in 21 cases, according to Masrawy<\/a>. These cover everything from electronic and non-banking financial transactions, to insurance on utilities, health insurance for students, and more controversially, marriage. The last thing we heard, the FRA was scheduled to hand the final draft<\/a> to cabinet for approval in September.<\/p>\n

Consumer Credit Act:<\/b> New legislation that would set up a federation for non-bank consumer finance and require companies to obtain a license from the FRA to sell goods on installment was approved by the cabinet in February<\/a>. All consumer finance players would be subject to the Consumer Credit Act, but retailers and manufacturers would only fall under the act if more than 25% of their annual sales are made on installment plans. The House Economic Committee greenlit the draft in June<\/a> following consultations. House representatives are expected to discuss the law further with the expectation that the House general assembly will vote on the act in the coming legislative cycle.<\/p>\n

Legislation granting FRA autonomy:<\/b> Legislation that would grant Financial Regulatory Authority (FRA) Act operational autonomy is expected to be revisited during the next cycle. The bill, if passed, would give the authority<\/a> status as a separate legal entity with its own balance sheet. The authority\u2019s head would be appointed by the president and would effectively have cabinet rank. The law had been introduced during the fourth cycle, but had been delayed during public hearings, as companies expressed concern that this would grant the FRA sweeping powers, a source from the House tells us.<\/p>\n

New central clearing company for Egyptian debt: <\/b>The Madbouly Cabinet\u2019s economic group approved in June<\/a> establishing a new central clearing and depository company, which is expected to handle all the clearing and registry of government debt issuances, as well as collect taxes from these issuances.<\/p>\n

Public Enterprises Act amendments:<\/b> A package of amendments to the Public Enterprises Act remains in the drafting stage, a year after Public Enterprises Minister Hisham Tawfik announced<\/a> the legislation. Plans to remove listed companies that are 75% government-owned from the act were revealed in April<\/a>, and are meant to improve governance for companies slated as part of the state privatization program and increase appetite for them.<\/p>\n

PPP Act amendments:<\/b> The Finance Ministry completed amendments to the PPP law<\/a> in June. The changes would make it easier for private sector firms to participate in public-private partnership (PPP) projects by eliminating competitive bidding in favor of direct negotiations, allowing unsolicited proposals, and broadening the range of projects on offer. The legislation should be introduced to the House in the coming legislative session.<\/p>\n

Real estate developers could face new regulation:<\/b> Fresh legislation announced by the Housing Ministry<\/a> at the start of the previous legislative session to regulate real estate developers is currently being reviewed by the government and industry stakeholders. The bill would create a new federation<\/a> for the sector armed with licensing powers and set up an insurance fund to protect consumers. Companies were understandably unhappy<\/a> to learn of proposals to fine and jail developers which miss deadlines. This is a key issue to be resolved before the bill passes to the cabinet for approval.<\/p>\n

Amendments to the \u201cold rent\u201d law:<\/b> Amendments to the old rent law<\/a>, which would increase rents on pre-1996 commercial contracts, were sent back<\/a> to the House Housing Committee in June after causing \u201cwide controversy\u201d in parliament. The legislation is also expected to be expanded to encompass non-residential leases. The amendments will be re-introduced to the House in the coming session.<\/p>\n

Medical tourism legislation:<\/b> A bill to regulate the medical tourism industry was placed on the legislative agenda back in December<\/a>. The legislation would create a national authority for the industry<\/a>, and it appears to require the government to develop a plan to market medical tourism abroad. A draft of the bill was recently completed by the House Tourism Committee and it will be discussed in the upcoming legislative cycle, according to Al Shorouk<\/a>.<\/p>\n

Regulating electric vehicles: <\/b>We learned in January<\/a> that the House Energy Committee was close to completing legislation to regulate the import and sale of electric vehicles. While we have heard nothing from the House on the new legislation, we have heard that the Madbouly Cabinet approved this month legislative amendments to the Industry Act that would set up a regulatory framework (including standards and quality control measures) for the industry, according to Veto Gate<\/a>.<\/p>\n

IN LIMBO- <\/b>There are a number of business and econ-related bills that seem to have been consigned to legislative limbo. These include:<\/p>\n