Lessons for the car market

Amira Hisham, Sunday 21 May 2023

Experts explain lessons learned from the initiative allowing expats to import tax-free cars

 car market
car market


Egypt’s initiative facilitating the import of tax-free cars by expats ended on Sunday, with the initiative collecting $763 million — an average of $20 million daily — from 151,000 expats who applied online, according to the Finance Ministry. 

Under the initiative, launched in late October with the aim of collecting foreign currency, Egyptians living abroad can purchase cars overseas and import them into Egypt and pay customs fees, VAT, and other taxes upfront in foreign currencies. 

They will then have a full rebate of these payments within five years according to the prevailing exchange rates at that time, which means they are importing customs-free cars. 

Osama Abul-Magd, head of the Association of Automobile Dealers in Egypt, said the association has approved 150,000 applications, and 24,000 applicants have already started transferring the required amounts to an account at the National Bank of Egypt (NBE). 

He added that 1,200 vehicles have entered Egypt as part of the initiative so far and that those who have been granted approvals to make the transfers but have not bought cars yet can benefit from the initiative for the next five years.

The initiative is meant to increase foreign currency inflows into Egypt, facilitate the acquisition of imported cars, increase remittances and raise the number of cars for sale in the Egyptian market.

There have been some problems, however, mainly due to difficulties regarding money transfers and the high customs rates imposed by countries that do not have free-trade agreements with Egypt.

This has prompted the government to approve some amendments, the most important of which is cancelling the condition that stipulated that fees be deposited in a bank account three months prior to making transfers and replacing it with a condition obliging applicants to submit bank statements for six months prior to the money transfer.

The amendments include reducing the customs tax by 70 per cent in countries that do not have free-trade agreements with Egypt and reducing the total sum expats need to transfer to the account of the Ministry of Finance at the NBE by up to 58 per cent depending on the capacity of the car’s engine and the type of fuel.

The amendments have encouraged Egyptian expats abroad to use the initiative, Abul-Magd said, noting that the majority of them work in the Gulf countries.

The initiative may have reduced the stagnation of the automobile market a little, but it has not achieved its desired effect, said Omar Balbaa, head of the Vehicles Division at the Federation of Egyptian Chambers of Commerce.

Abul-Magd concurred, adding that the effect has been largely unnoticeable because only 1,200 cars have entered Egypt through the initiative thus far. The Egyptian market receives 100,000 imported vehicles annually, in addition to 100,000 and 120,000 locally produced ones, he noted.

The full effect of the initiative will appear after the 150,000 applicants have their cars delivered to Egypt, he added.

Egypt’s vehicles sales fell in the first quarter of 2023 by 74 per cent year-on-year, a first over the past 25 years, said Abul-Magd.

Balbaa said Egypt’s vehicles market was “currently in the intensive care unit,” explaining that there is a wide gap between supply and demand — supply being scarce — which has led to overpricing of up to 25 per cent.

He said that cars are an essential item and are in demand. However, purchasing trends have changed, with people now often choosing to buy Chinese cars instead of German ones.

Car dealer Ahmed Al-Senousi said there are 50 car agents in Egypt, each used to ordering about 1,000 cars when there is an abundance of supply. Previously, expats would buy cars from abroad when they cost more than LE1 million.

He added that secondhand cars used to be high in demand by the middle classes, but now there is less supply.

Balbaa said the used-car market toed the line of that of new cars. Secondhand cars have become more expensive, and many owners do not sell because they doubt they can buy a better one due to exorbitant prices.

Abul-Magd expects more initiatives of the same sort in the near future, saying that they should be more successful because they will be based on experience in facilitating conditions for applicants. 

He said there should be a new platform that is more user-friendly containing all car brands. The existing platform had contributed to the waste of about 20 per cent of applications because people could not easily interact with it and it did not satisfy all their demands.

He added that applicants can withdraw their applications from the existing initiative a year after they receive approval for the import of their car.

* A version of this article appears in print in the 18 May, 2023 edition of Al-Ahram Weekly

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