Egypt Removes Customs Tariffs on Cars in 2019

Background:

In 2001, Egypt and the EU cooperated to sign the “Euro-Mediterranean Agreement Establishing an Association between the European Communities and their Member States and The Arab Republic of Egypt.” The agreement came in to force in June 2004, after its ratification by EU member states and Egypt. It aimed at promoting healthy political dialogue as well as constant cooperation – and most importantly, the gradual establishment of a free trade area over a period of twelve years. Moreover, Egypt is a signatory of the World Trade Organization’s General Agreement on Tariffs and Trade (GATT), meaning that it is required to reduce tariffs to meet an international standard of 0-40%. This includes vehicles, which previously faced very high custom tariffs. In 2010, cars less than 1600 cc were due a customs charge of 40% of the price of the vehicle and a sales tax of 15%, while cars over 1600 cc were subject to a 150% of purchase price and a sales tax of 35%. Car owners also had to pay a license fee based on the engine capacity of their vehicle and on where it was assembled.
However, when it comes to the practical implementation of the twelve-year-old treaty, there has been much speculation around the actual reduction of the prices of vehicles.
For example, in December 2017, the Minister of Trade and Industry stated that the Egyptian government had decided to postpone applying the 10% cut due to be reduced as per the Egyptian-EU partnership agreement. The minister confirmed that the decision was taken in agreement with the EU, and after a number of market studies conducted by the Ministry of Trade. This is because, as per the original agreement, the Egyptian government maintains the right to suspend reductions for a period not exceeding one year. Indeed, there was no 10% reduction on imported European cars in 2018.
The ministry had done this in 2012 as well, after the revolution. This meant that customs are due to drop by an accumulated 30% in 2019.

Plans for 2019:

It is for this reason that the elimination of all tariffs on EU cars is expected to take place in 2019. Sticker prices of vehicles imported from the EU are due to drop by 10-15%, given that the USD exchange rate for customs remains stable at its current level. However, cars imported from Europe will still be subject to value added tax depending on their category.
The explanatory memorandum accompanying the Custom Tariff Report of 2017/18 explains that Egypt is going through a time of evolution and modernization in light of a worldwide movement towards a more open economy. Indeed, Egypt must comply with its international obligations and treaties, but this must be balanced with a need to maintain Egypt’s own economy, especially at a time of economic hardship. This in turn may mean that even if customs are removed, it would be beneficial for the Egyptian economy to recover this money through imposing other fees.
Our suggestion would be to impose a higher initial licensing fee on imported cars or amend the U.S. Dollar custom exchange price to be the same as general U.S. Dollar exchange price published by the Central Bank of Egypt for some specific products such as cars. This would recover some of the money, which Egypt is in need of, but will only be applicable to license registration in the first year, and will affect cars depending on their origin and price. While this may keep car prices high for the time being, it would only be a temporary solution until the economy is more stable.
All in all, Egypt is heading towards a more fortuitous car sales market, especially after they had been reduced by 99,000 vehicles sold in 2017 compared to 142,000 in 2016. However, this move must also be balanced with the need to strengthen Egypt’s economy in a well-rounded manner. For that reason, we suggest the maintenance of high license fees on EU-imported vehicles.


Prepared By

Marina Iskander – Partner

Copyright © 2018 Andersen Tax & Legal Egypt, All rights reserved