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Egypt government wants to temporarily lift tax on imports of some cars

The government of Egypt agreed on a bill that would allow oversea Egyptians import cars without tax in the territory. In return, the country will collect some foreign reserves for five years.

Cabinet of Egypt on October 12
Cabinet of Egypt on October 12 | © State information portal of Egypt

During a meeting on October 12, the Cabinet of Egypt approved a draft law that will lift import tax on some passenger cars temporarily.

The new custom regulations will give Egyptians who live abroad the right to import one passenger car for personal use exempted from custom tariffs and tax, including the value-added tax.

But this right is granted only if buyers pay for the car, that can’t be older than 3 years, in cash with foreign currency from a foreign bank account. Egyptians eligible to the tax exempt need to have a valid legal residence abroad, to be at least 16 years old with a bank account opened overseas for at least three months.

According to the statement, the government answered to long-time requests of Egyptians living abroad. Premium cars are often cheaper to import than in the domestic market in Egypt and some regulations had been applied to car imports a couple of years ago. But the government spokesperson Nader Saad on Elbalad TV said it will not affect the domestic car industry as the tax exempt will only be temporary.

The benefits will indeed be available for only four months after the law is enforced, which is expected in two weeks after coordination between the minister of Finance, the Central Bank and competent authorities. Details about which foreign currencies are eligible and the tax amount for each vehicle type will be released later on.

Diminishing foreign currency reserves

But Egypt will also be able to collect some foreign currency that way. Buyers indeed first need to pay for all of the taxes to the ministry of Finance to get the right to import the vehicle. And it will keep this money for at least five years before being returned to the purchaser at the same exchange rate value as the original payment date. If the import is not completed within the year of purchase, the administration would refund the buyer with the exact same amount in the foreign currency that was transferred.

This announcement comes in a context of shrinking foreign currency reserves, inflation and depreciation of the Egyptian pound.

Some banks have tightened limits on foreign currency withdrawals from local currency accounts this week, Reuters reported. Egypt’s net international reserves decreased 19 percent since the start of 2022 with substantial hits in March, May and June.

The war between Ukraine and Russia significantly affected Egypt, one of the largest importers of Ukrainian and Russian wheat in the world.

To stabilize financial markets in March, the Central Bank of Egypt used excess foreign currency reserves to “cover substantial foreign investor outflows and partially cover local demand” so that import of strategic goods remain available and that prices remain stable. It also had to repay external debt obligations in May of about 2 billions dollars.

But despite the Central Bank efforts, the Egyptian pound actually lost approximately 18 percent of its value to the U.S. dollar in a couple of days in March, and the currency has kept depreciating since then, driving the country’s inflation.

Inflation in Egypt has continuously increased in 2022 but accelerated since the war in Ukraine. Consumer price index in September recorded a 15 percent increase annually, and reached 18 percent when excluding price increases for food and energy, according to the Central Bank of Egypt.

Egypt is hoping to sign a support package deal with the International Monetary Fund.

Read more about Egypt

Source
State information portal of Egypt, October 2022

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