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Sunday, 19 May 2019

FinMin, Trade Ministry expand Egypt’s automotive incentives strategy to cover all industries

EXCLUSIVE- FinMin, Trade Ministry looking to expand automotive industry-style incentive strategy to other sectors: The finance, trade and industry ministers are working on a more expansive incentives strategy for all local industries based on its program for the automotive industry, a senior official in the government tells Enterprise. The program would, if it comes to fruition, grant customs breaks and tax incentives to manufacturers based on the percentage of domestic content used in the products they manufacture. Specific incentives would vary by industry, the official said.

What incentives can we expect to see? The committee drafting the strategy have only decided thus far on incentives for electronics companies that apply for a license to begin manufacturing televisions (which are currently only assembled locally). These manufacturers will get a 40-60% tax break and will also be eligible for discounts on their customs bill of 5, 10, 40, or 60%.

The incentives are expected to cost the government some EGP 10 bn in customs revenues, but our source tells us the government sees the overall economic benefits far outweighing that price tag. The Finance Ministry had projected its customs revenues in FY2019-2020 to come in at EGP 51.7 bn, from EGP 45.3 bn during the current fiscal year.

The incentives will require amendments to the Customs Act and will introduce two different customs rates for products that are fully assembled and those that will be used for domestic manufacturing. The program could also include customs incentives for components of new manufacturing lines.

The draft strategy will likely be ready by mid-June, at which point it will be sent to Cabinet for review and approval. If the strategy can be enacted through changes to the act’s executive regulations, it could come into effect this summer. Otherwise, it heads to the House of Representatives for debate this fall.

Background: The government had been looking to finalize its (not-the-automotive-directive) incentive program to encourage automotive manufacturing in Egypt, a senior government official told us earlier this month. The program will grant customs discounts for auto manufacturers based on the percentage of domestic content in the vehicles they produce, ranging from 10% for assemblers to 110% for auto players that begin manufacturing cars locally.

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