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Egypt implements temporary 5% tax increase for wealthy Foreign reserves dip to $17.284 bln at end-May

CAIRO, June 5, (RTRS): Egypt’s interim president, Adly Mansour, on Thursday signed into law a temporary 5 percent income tax increase on individuals earning more than 1 million Egyptian pounds ($139,900) a year, state news agency MENA said. The tax will apply for three years.
Foreign investors will be looking to president-elect Abdel Fattah al-Sisi to enact reforms to strengthen an economy racked by three years of political upheaval, after he takes office on Sunday.
“Imposing this additional temporary tax comes in the framework of the government’s measures to achieve tax reform to ensure the expansion of the income tax base,” MENA quoted presidential spokesman Ehab Badawi as saying.

The country of 85 million has been struggling to curb a budget deficit that swelled to around 14 percent of GDP last year. It is also under pressure to cut subsidies that eat up around a fifth of its budget — but risks triggering protests if it does so.
Those subject to the temporary tax will be given some choice over which areas their funds can be spent in, with the option to direct the money to designated projects in areas including education, health, housing and infrastructure.
Egypt’s foreign reserves fell to $17.284 billion at the end of May from $17.489 billion in April, the central bank said on Thursday.
Reserves fell sharply after a 2011 uprising that ousted President Hosni Mubarak but were lifted last year when Gulf Arab states gave billions of dollars in aid to Egypt after the army deposed elected Islamist President Mohamed Mursi following protests against his rule.
Egypt hopes to raise $1 billion through an investment fund to support its tourism sector, tourism minister Hisham Zaazou said on Wednesday, after more than three years of violence, and political instability that have decimated the sector.
A roadshow was likely to start in July with Gulf Arab states, he said, which have already given billions of dollars in aid to Egypt. The fund is expected to raise $250 million by next quarter and the remaining amount within a year.
Violence, which flared when Hosni Mubarak was deposed in 2011, has intensified since the army ousted the country’s first elected president in July. That has further depressed interest from tourists and foreign investors.
More than 14.7 million tourists visited Egypt in 2010, dropping to 9.8 million after the revolution that toppled Mubarak. The sector picked up in 2012, attracting 11.5 million but shrank again to 9.5 million last year after various attacks on tourist destinations.
Two South Korea tourists were killed in February when a bomb hit their bus in South Sinai near the Israeli border.
Egypt is under increasing pressure to find sources of revenue to cover its budget deficit which swelled to 14 percent last year. Its foreign reserves dipped to a critical low last year and its tourism revenue dropped by 43 percent to $1.3 billion in the first quarter of this fiscal year.
Meanwhile, improvements in the political outlook suggest post-Arab Spring countries Egypt and Tunisia may be at the bottom of their ratings cycle, a Fitch ratings analyst said.
Political instability in both countries in the three years since the Arab Spring uprisings has led to ratings downgrades.

Fitch cut Tunisia’s rating to BB — with negative outlook last year, but upgraded Egypt’s outlook to stable on its B-minus rating in January.
“There have been some positive developments on the political side — maybe we are at the low point for the ratings on these countries,” Paul Gamble, director in the sovereign ratings group at Fitch, told a briefing.
Egypt is due for a ratings review on June 27 and Tunisia on Oct 24, according to Fitch’s annual ratings calendar.
Tunisia has a new constitution and aims to hold elections this year.
Fitch sees growth at 3.2 percent for Egypt this year and 3.5 percent for Tunisia.
“Things are improving, but from a very low base,” Gamble said.


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