Tax-free car imports

Khaled El-Ghamry, Tuesday 25 Oct 2022

Khaled El-Ghamry asks experts about the impact of the government’s decision to allow Egyptian expatriates to import tax-exempt cars

Expats importing cars will be granted an exemption from custom duties, taxes, and dues
Expats importing cars will be granted an exemption from custom duties, taxes, and dues

 

It has been two weeks since the House of Representatives approved a government-drafted bill allowing Egyptian expats to import cars for personal use free of tax.  While the bill awaits ratification by the president, debates are continuing about its possible impact on a market that has seen large increases in prices and significant delays in handovers.

Under the draft legislation Egyptians expats with legal residence overseas and an active bank account will be provided with a four-month window to import cars that are manufactured  no more than three years earlier for personal use.

Expats importing eligible cars will be granted an exemption from custom duties, taxes, and dues in return for making a five-year deposit, in hard currency, equal to the value of the custom and tax exemptions. At the end of the five years the importer will be refunded in Egyptian pounds, at the trading USD-EGP exchange rate, with no interest. Officials, including the ministers of finance and immigration, have said the scheme could see $2.5 billion deposited with the Finance Ministry.

Ahmed Al-Mazahi, former CEO of Eagle Nest Marketing Research, believes the figure could be even higher.

“We are talking about 10 million Egyptian expats. If just 500,000 of these seek to import under the new scheme, then you’re looking at $5 billion entering the state coffers,” said Al-Mazahi.

While Egyptian expats’ deposits will attract no interest and be refunded in Egyptian pounds certainly benefits the government, the benefits for expat importers are far from negligible. Not only will they ultimately avoid the duties that would have been levied on their vehicle, says Al-Mazahi, “for some the scheme creates room for a profit-making should an importer chose to sell a car shipped into the country at the [much higher] local market price rates.”

“It is also likely that the fluctuations in the pound-dollar exchange rate will be to the importers’ advantage when they are due to cash their deposits, creating another profit-making possibility for those who opt to keep their cars.”

By challenging the pricing system of the domestic car market the new scheme could undermine the large profit margins that car agencies make though experts say this will be a temporary hiccup given the four-month duration of the tax-exemption scheme. And car agencies could also offset any potential losses by incorporating tax-exempt imported cars into guarantee programmes that include the sale of spare parts and regular car maintenance servicing.

Khaled Saad, secretary-general of the Egyptian Automobile Association, sees other potential problems with the scheme. Imports by car agencies are usually negotiated annually between the local agent and overseas suppliers. In the event of the market being flooded with quasi-new cars imported on the tax exemption scheme agents could fail to achieve their targeted sales and would need to negotiate down the number of cars they import. This would not only reduce the profits of agencies but prompt overseas suppliers to look for alternative markets.

In the short and medium terms, says Saad, this could reduce the availability of new cars in the Egyptian market, though he argues that “what we should really be working to get now is a national strategy to upgrade car manufacturing in Egypt, and for this to happen we need a set of new laws and regulations”.

Mohamed Ghoneim, vice chairman of marketing at Great Automotive, believes the tax-exemption scheme could help contain the exaggerated premium many agencies charge customers unwilling to join long waiting lists. He also suggests that, to complement the recent tax-exemption bill, an automated programme is needed to help expats calculate the deposit required for each car they wish to import.

“There has to be a website or an application to which interested expats can turn to ensure proper management of the scheme,” he says. He also warned that by not placing a limit on the number of cars an expat can import, the scheme could inadvertently create a parallel market in which quasi-new cars replace brand-new vehicles.

Karim Ghoneim, board member of the Cairo Chamber of Commerce, points out that at a time of high inflation rates and overall foreign currency shortage the new bill has more benefits than downsides.

“We are talking about a scheme that will help bring in foreign currency, increase supply to meet the demand and contain the over-pricing premium and allow expats planning their final return home to avoid high taxes and customs on their private cars,” he says. A four-month scheme, he adds, cannot really create a parallel market; rather, it could act to force car agencies to reconsider their otherwise unfair pricing systems.


*A version of this article appears in print in the 27 October, 2022 edition of Al-Ahram Weekly.

Search Keywords:
Short link: