Parliament agrees with Finance Minister to pass VAT in exchange for imposing another tax

Samira Saeed
12 Min Read

Daily News Egypt conducted an interview with Mohamed Elswedy, head of the Federation of Egyptian Industries (FEI) and the parliament’s Industry Commission. He said that his committee has agreed with Minister of Finance Amr El-Garhy to pass the value-added tax (VAT) law in exchange for imposing an exceptional tax on companies with registration values less than EGP 500,000 over six months.

Do you expect that parliament will approve the VAT law despite objections raised against it?

Parliament intends to approve the VAT law on the condition that the Finance Ministry will impose another tax on the companies with registration values lower than those mentioned in the VAT draft law.

The Industry Committee will demand the review of some provisions of the law, especially those concerning the sectors that will be exempt from the tax, such as health and education. We want to make sure that citizens benefit from these sectors. Another tax will be imposed on government agencies that do not support citizens, while the government will offer support to citizens in another way.

Do you expect any rise in export subsidy allocations?

FEI is negotiating with the government to increase the export subsidy allocations to EGP 10bn up from EGP 6bn. This increase is expected to be applied after implementing the new programme to support exports.

The expected increase will be financed by sources other than the Ministry of Finance.

We submitted a proposition urging the government to boost exports and increase export subsidies. Each Egyptian pound in export subsidies brings $2 to the state on average. The government really needs foreign exchange to import raw materials.

What were the growth rates of industry in the previous fiscal year?

The industrial sector has faced many obstacles, which have led to negative growth rates. The US dollar crisis and the lack of land were the main obstacles. But we hope that the industrial sector can increase its growth rate during the new fiscal year because “industry is Egypt’s only hope”.

Export subsidies, private sector involvement in national projects, and allowing fair chances for the private sector to obtain foreign loans would increase the growth rate of industry.

Industry is the most important economic sector in Egypt. It offers the largest volume of job opportunities, but it endures many problems, mainly the unstable US dollar exchange rate and market turmoil.

How has the industrial sector been affected by the rise in the US dollar price?

The dollar crisis has affected the prices of goods and the volume of sales in many factories as well as companies’ commitment to the state tenders. The change in dollar price affects factories’ ability to supply goods at the agreed prices because they want to avoid losses.

FEI advocated for the formation of a committee to determine an average US dollar exchange rate on the informal market over three months, so as to evaluate the monthly losses of companies and decrease taxes.

We predict that the government would attract major foreign investments if the dollar exchange rate was stabilised.

The devaluation of the Egyptian pound against the dollar was supposed to increase exports and decrease imports; however, the exports were not positively affected due to other obstacles.

FEI intends to address the Central Bank of Egypt (CBE) and to ask it to provide dollars for factories so they can import raw materials in the coming period.

We did not tackle that problem recently with the CBE because it was busy with talks about the expected loan from the International Monetary Fund (IMF).

Parliament’s Industry Committee intends to amend the tenders law so as to allow changing the US dollar price in contracts in case the rate was changed after the fact.

We are also looking to discuss changing the prices of school book tenders, so as to avoid the losses sustained by the private sector due to the continued increase in the price of the dollar.

Was the IMF loan an option in the government’s programme presented before the parliament? What are the reforms that should be implemented?

The IMF loan that the government recently agreed upon was never an option in the programme presented before the parliament. However, the parliament called for it because the programme requires a large amount of foreign exchange to cope with the current pressures.

The parliament’s Industry Committee prepared a list of regulatory and administrative reforms that must be implemented to avoid the disadvantages of borrowing from abroad. The disadvantages include regulating the Egyptian market, reducing cash-trading, fixing the dollar price against the pound, and abolishing the parallel market.

Eliminating the informal market will significantly increase the size of foreign investments, especially since foreign investors want to inject investments into Egypt, but the dollar exchange rate changes prevent this.

I’m calling on the ministries to work as a unified and comprehensive economic group and to avoid working as a system of isolated islands. For example, all ministries should be aware of the request by iron factories for a gas-price reduction. The state is going to get a return from the price reduction. The decision should be resolved as fast as possible as it is an economic decision.

The reforms also include organising ports, abolishing the funds of the governorates and ministries, and granting the General Organisation for Export & Import Control independence as the only regulator of customs.

There should be justice when it comes to taxes. That can happen by activating an organisation that imposes taxes equally on all dealers in the Egyptian market and by formalising informal institutions.

What do you think about the initiative that grants Egyptian citizenship to foreign investors in exchange for a US dollar deposit?

I support the initiative that grants Egyptian citizenship to foreign investors. Many countries with strong economies, such as Canada, grant citizenship in exchange for a sum of money.

We cherish our nationality, and we have the right to take all the required security procedures.  There are roughly 5 million foreigners settled in Egypt. Some are Arab investors from Syria, Libya, and Yemen who have investments in Egypt, so there is no problem granting them citizenship. In case any problems arise, we can revoke it. Granting citizenship encourages stability and increases investment.
What is your comment on the World Bank report, which contributes the decline of investments in Egypt to political instability?

The political situation in Egypt did not affect the economy or investment. The World Bank announced in its recent periodical report: “If there was a state of political uncertainty in Egypt that affected investment, the IMF would refuse to give it the loan.”

The  report, issued last month, included 10 essential obstacles facing investment in Egypt. Among them were political instability, finance and electricity problems, corruption, licensing and permit problems, the inflation of the informal economy, taxes, crime, work systems, and an untrained work-force. The report clarified that 50% of private sector companies consider political instability is the most significant obstacle facing investment in Egypt.

Egypt’s economic situation is not alarming. I checked the General Authority for Suez Canal Economic Zone’s report days ago. The report states that eight or nine companies are providing new investments in the Suez Canal Economic Zone.

The licensing law will guarantee activation of the one-stop shop. The parliament is delaying the approval of this law because the House of Representatives is preoccupied with the state’s priorities, such as approving the general budget and the VAT law.

What are the proposed executive regulations amendments to the Mineral Wealth Law ?

Parliament’s Industry Committee is currently working on amending executive regulations to the Mineral Wealth Law. The Minister of Petroleum and Mineral Resources will discuss the amendments on Tuesday, 9 August. The quarries are damaged due to current executive regulations.

Why is the establishment of small- and medium-sized industrial complexes delayed?

The establishment of the small- and medium-sized industrial complexes is indeed being delayed, and the FEI is pushing the Ministry of Industry complete the establishment of these complexes. The work for plastics is now regulated and areas of Upper Egypt are still under study.

The FEI and the Ministry of Industry are currently discussing the option of offering industrial lands on a usufruct system or for free, instead of selling them. The industrial sector requires 10 times more land than what is actually offered by the government.

Do you expect any disputes with the EU after the import regulations decision?

The Ministry of Industry’s decision concerns European products that are not enrolled in the General Organisation for Export & Import Control—there are no disputes with the European Union about it. The decision is a procedure that is followed by all countries. There is no country allowed to import products without knowing their sources. The procedures are simple; however, many people interpret them wrongly. These procedures are no more than a certificate that proves that the factory exists and ensures the quality of its products.

I don’t think that the EU will tighten the passage of Egyptian exports. All EU countries inspect Egyptian factories. We have never requested inspections, but we requested to import from registered factories only.

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