The Egyptian cabinet has approved a draft law submitted by the finance ministry exempting up to 80 percent of bank provisions from taxes, according to an official statement issued by the ministry on Thursday.
Loan loss provisions are an expense set aside by banks as an allowance for bad loans.
Such taxes have been opposed by the Central Bank of Egypt’s governor Hisham Ramez, who reportedly said that the taxes on banks’ provisions would prevent lenders from funding small and medium enterprises once their allocations to avoid delinquency risks have been levied.
Taxing bank provisions was suggested and approved by the Shura Council (the upper house of Egypt’s parliament) during Mohamed Morsi’s presidency in May 2013; however, the tax was cancelled a month later when bankers contested the move.
Ashraf Badr El-Din, member of the now-dissolved Shura Council’s financial and economic affairs committee, had argued that banks tended to overstate the size of their provisions in order to escape taxes.
He added that the combined total of such provisions in the Egyptian banking system exceeded some LE57 billion (approx. $8 billion).
“Bank operations depend on people’s money to issue loans. Consequently, having provisions becomes a necessity to mitigate the risks of bad loans. That is the norm in the international banking system,” said Ahmed Galal, the current finance minister, in Thursday’s statement.
Source: Ahram Online
