With the adverse economic repercussions that have swept the Egyptian economy since the outbreak of the Coronavirus pandemic, the Egyptian Government introduced a monthly social solidarity contribution (the “Contribution”) to be payable by employees and pensioners. The aim of the Contribution is to remedy the negative effects of pandemics and natural disasters on the economy by deducting a certain percentage to the benefit of a special account and distributed amongst certain sectors and persons that are impacted.
Law No. 170 for the year 2020 regarding social solidarity contributions to face the economic repercussions resulting from the outspread of pandemics and natural disasters (the “Law”) was enacted by the Parliament and published in the Official Gazette on 13 August 2020. The Law entered into force the day following its publication.
The key aspects of the Law are as follows:
Application of the Social Solidarity Scheme
According to the Law, 1% of the net income of employees and 0.5% of the net monthly pension payments to pensioners will be deducted monthly as a collective contribution to face the economic difficulties resulting from the outspread of pandemics or natural disasters. This amount will be deducted for 12 months following the enactment of the Law and may only be extended by approval of the House of Representatives.
To protect certain sectors, the Law permits the Cabinet to wholly or partially exempt employees of certain sectors economically hindered by pandemics or natural disasters from the Contribution. This exemption must be based on a recommendation by the Minister of Finance and the Minister under whose remit falls the sector in question.
Scope of Application
The Law broadly defines “employees” who will be subject to the Contribution to encompass both public and private sector employees. The most notable classifications include, inter alia, the following:
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- public sector employees including those employed by governmental entities within the general state budget or with independent budgets;
- public works sector companies and companies partially owned by the state;
- private sector and bank employees;
- all chairmen and board members; and
- employees whose employment is regulated by special laws or regulations.
The Law applies to employees in any other capacity and applies to both full-time and part-time employees.
The only expressly exempted categories are employees with net salaries not exceeding EGP 2,000 per month and pensioners with net pension payments not exceeding EGP 2,000 per month.
Allocation of Funds
A “Pandemics and Natural Disasters Relief Account” is to be set up by the Ministry of Finance within the consolidated treasury account at the Central Bank of Egypt. The Contributions alongside other grants and donations for this purpose will be deposited in such account. Entities concerned with income and pension disbursement must deduct the abovementioned percentages and transfer them to the account.
The allocation of the funds will be in the following order:
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- Disbursing financial support to negatively impacted economic and production sectors, as well as negatively impacted establishments, companies and projects.
- Payment of financial aid to the employees of economic and production sectors, as well as negatively impacted establishments, companies and projects.
- Disbursing financial and in-kind assistance to individuals and families as decided by the President of the Arab Republic of Egypt.
- Contributing to the funding of remedial and public health research and the development and continuity of the healthcare system.
- Other contributions as specified by a decision of the Cabinet to mitigate the repercussions of the pandemics or natural disasters.
Market Reaction
Prior to its enactment, Dr. Mohamed Fouad, a member of the House of Representatives, stipulated that although the purpose of the Law relies on the principle of social solidarity as outlined in the Egyptian Constitution, the Constitution specifies social and not economic solidarity. His reservations on the Law center around the idea that social solidarity is voluntary and carried out by civil societies and hence should not be forcefully imposed on the Egyptian population through economic measures.
Nonetheless, Finance Minister Dr. Mohamed Maait confirmed that the Law comes in response to the adverse impacts of the Coronavirus pandemic on the Egyptian economy and that Egypt, much like several other nations, is forced to take measures to counter its economic repercussions.
