As the automotive sector awaits the new customs reductions on European car models by 2016, rumours emerged suggesting that the state will impose a new tax on cars within days as part of the new automotive industry strategy.

The tax sparked a debate among those involved in the sector, where some believe the tax is the state’s attempt to manipulate the EU-Egypt Association Agreements in order, and to entrench protectionist policies rather than competitive regulations. Such a task thereby offsets the value of reduced customs on the consumer’s end product.

Egypt’s chief negotiator for the agreement, Gamal Bayoumi, said imposing a tax on imported cars is not a manipulation so long as all models are treated equally.

Based on the GATT agreement signed between Egypt and the EU, members are allowed to impose taxes on products as long as the tax is imposed on all local and imported goods, with the possibility of exempting local products if that will create more profits for the state.

Bayoumi said the government is working on developing a strategy for the automotive industry by attracting real automotive manufacturers, especially for engines, gearboxes, and the body.

“We do not want to import parts to assemble them in Egypt without making real profits,” he said. The government will cut customs on cars by 10% in 2016, which will bring the total customs reduction to 60% since the agreement came into force.

Egypt fulfilled its obligations until the 25 January Revolution in 2011, when customs cuts were halted in 2014 without any real justifications aside from the interests of businessmen who assemble European cars in Egypt, according to Bayoumi. Despite his objection, as well as Europe’s, he defended Egypt’s decision, since it has the right to suspend cuts for two years, as per the agreement’s terms.

The agreement allows companies and manufacturers in Egypt to form alliances with European companies that provide them with technology to manufacture some of the most important car components, such as the engine, gearboxes, and the body.

Honorary Chairman of Automotive Marketing Information Council (AMIC) Raafat Masrouga told Daily News Egypt that Europe has expressed its concern regarding the imposition of an additional tax.

The tax is an attempt to manipulate the implementation of the agreement through the automotive industry strategy, he said. Masrouga further called upon the government to maintain a real competitive environment in the sector and stop taking protectionist measures.

The new customs reduction will bring down the price of cars by 5%, provided that the dollar price stabilises. “The industry strategy and the mechanism for implementation will reveal the impact of the tax on prices of cars,” he said.

An official source at the Egyptian Customs Authority said the government has not yet instructed them to postpone the new custom cuts. Earlier this year, the authority resumed customs cuts after the suspension in 2014.

The source said enforcing the reductions in 2016 will boost the total reductions up to 60%, which will increase to 70% in 2017 and 80% in 2018. The final 20% will be applied in 2019 to offset the halted period in 2014 and will abolish all customs on imported European cars.