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Sunday, 27 November 2016

Spotlight On automotive directive and its executive regulations

Today, we’re featuring copies of the automotive directive legislation and its executive regulations. The legislation, which aims to give incentives to the local auto industry to go further up the value chain into manufacturing, is currently being deliberated in the House of Representatives, where it was introduced in late October. Meanwhile, The Engineering Industries Division of the Federation of Egyptian Industries (FEI) has completed drafting its proposed executive regulations for the automotive directive in cooperation with the Egyptian Automotive Manufacturer’s Association, the Egyptian Auto Feeders Association, and officials from the Trade and Industry Ministry. These have been sent to the ministry for review with an eye towards adopting them when the automotive directive is voted on in Parliament, said the head of the division’s transportation department, Wael Ammar.

The FEI’s transportation division met with Egypt’s auto manufacturers to run the regs by them. GB Auto and General Motors have both come out in favor of the proposed document. Bavaria Group and Fiat Chrysler raised objections to the gradual increases in the domestic components mandated by the regs, while Nissan Egypt has reportedly requested amendments, sources tell Al Borsa. Based on a copy of the automotive directive that ran in El Watan and a poorly written article on the regs by Al Borsa (which does very little in explaining the nuances of the legislation), key features of the law include:

Incentives: Companies that meet minimum requirements domestic content, production, and exports set out by the regs will receive a payout for every car sold from an auto industry fund. For passenger cars, companies can expect a payout worth 23.1%-57.5% of the sales price of the car (which must include production costs and taxes), varying by engine size. A break on customs duties for imported parts will be proportional to the percentage of domestic components used to assemble the vehicle.

New taxes and Customs: The law sets import tariffs on cars at 10%. The law will also impose an “auto industry development tax.” This will be 30% on cars with engines below 1600cc; 100% on cars with engines between 1600cc and 2000cc; 135% on passenger cars above 2000cc; 30% on microbuses; and 10-20% on trucks. It is not yet clear whether this tax will replace the sales tax and how it will impact the 10% schedule tax imposed on the industry under the value-added tax.

Auto Industry Development Fund: The automotive directive would see the establishment of a fund administered by the Industrial Development Authority and deposited with the central bank which will pay-out the benefits and incentives for the industry. The Finance Ministry will deposit all taxes from the industry into this fund.

Domestic component: To be considered manufactured in Egypt, a passenger car will need to include 45.5% domestic content in the first year, rising over time to 60% after eight years. A government body will be selected to verify this condition is met.

Production requirement: Companies producing cars with engines 1.6L or smaller must produce 20,000 cars in the first year of the directive and increase that to 60,000 after eight years to benefit from the incentives outlined by the regs. Those producing cars with larger engines must produce at least 3,000 units in year one, and 8,000 cars annually within eight years. Production quotes for medium and heavy trucks will be 20,000 in the first year with a gradual increase to 50,000 in eight years.

Export requirement: The regulations would also set export requirements to be verified by the Customs Authority, but the coverage we’ve read so far is sufficiently unclear that we’re not summarizing the requirements here. We’ll come back to this bit later in the week.

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