Automotive industry strategy heads into next phase

Ahmed Amer
15 Min Read

Both divisions of transportation and feeding industries in the Engineering Chamber of the Federation of Egyptian Industries (FEI) finished the development of the automotive industry strategy meant to bolster Egypt’s automotive sector. The strategy has been developed in cooperation with the Egyptian Automobile Manufacturers Association (EAMA) and the Egyptian Auto Feeders Association (EAFA). The proposal has been submitted to the Ministry of Industry and Trade.

Head of the Transportation Division, Wael Ammar, told Daily News Egypt that they finished the development of the suggested executive regulations of the strategy, which is still up for discussion in parliament. The strategy is expected to be issued as a law that will include a new customs tariff, a new tax, and three programmes that will include investment incentives.

Ammar added that the division approved the proposal, with the majority of its members’ votes, after it was finished.

Sources told Daily News Egypt that Sayed Abu El-Qomsan, the consultant of the Minister of Industry and Trade, developed the proposal and presented it to the EAMA, EAFA, the divisions of transportation  and feeding industries to study it and give their opinion.

The sources added that the transportation division met with representatives of Ghabbour Auto, Nissan Egypt, General Motors, Bavarian Auto Group, Toyota Egypt, Fiat Chrysler, and Al-Amal to discuss the items of the executive regulations.

During the meeting, Bavarian Auto Group and Fiat Chrysler rejected out of hand the eight-year timeframe by which manufacturers must gradually increase the ratio of local components. Nissan Egypt for their part wanted the ratios modified, while Ghabbour Auto and General Motors agreed on the items of the executive regulations without any changes.

The transportation division has also agreed on the proposal which was sent to the Ministry of Industry and Trade for approval once parliament discusses and adopts it.

DNE Photo
DNE Photo

Tax collection

Regarding collecting taxes, the fourth article of the bylaws requires all companies and facilities that produce vehicles to pay taxes on the vehicles they produce either directly or through other factories to the Tax Authority. Car purchasers would not be required to pay any part of that tax.

According to the proposal, the Tax Authority must deposit the taxes collected on manufactured cars into an account in the Central Bank of Egypt. It must also produce a monthly report of the vehicles on which taxes have been collected, the different tax segments, and the amount of taxes collected.

Under this strategy, all companies and facilities that produce vehicles must present to the relevant authority a record of produced and sold vehicles, their sale price to consumers, and the taxes collected. Imported vehicles will also have the tax levied on them, regardless of the reason for their import.

The strategy also provides incentives for car manufacturing companies and facilities, provided they register with the government. Registered companies would have the right to determine which brands and models they would like incentivised, and they would be allowed to deal with other companies and facilities that are considered associated parties as one entity.

The government is responsible for reviewing the documents of the entities willing to take advantage of the incentive to ensure that the incentive’s requirements are met, and to determine the value of the incentive.

The incentive is granted in accordance with the stipulations in article 6 of the law. It is calculated based on sales records to consumers which must include the value of the vehicle and the amount of taxes imposed on them. Companies that deepen the industry, engage in quantitative production, and exports will be eligible for incentives.

Requirements of receiving the incentive for deepening the industry

An incentive on deepening the industry is granted to companies that produce vehicles, if they register an increase in the ratio of locally produced and locally assembled vehicles to 60% for passenger cars and 70% for light and medium-sized vehicles over a period of eight years.

The strategy also aims to increase the ratio of locally produced components in the locally assembled passenger cars and microbuses to 45.5% in the first year, 46.5% in the second year, 48% in the third year, 50% in the fourth year, 52.5% in the fifth year, 55% in the sixth year, 57.5% in the seventh year, and 60% in the final year of the strategy.

For light and medium-sized vehicles, the strategy requires manufacturers to increase the number of locally produced components to 48.5% in the first year of the programme, 50% in the second year, 52% in the third year, 54.5% in the fourth year, 57% in the fifth year, 60% in the sixth year, 65% in the seventh year, and 70% in the final year of the strategy.

In order to ensure the strategy is implemented, companies will have to obtain a certificate approved by the state and in line with their regulations. If companies fail to meet the minimum requirements, the company may compensate by exporting locally produced components or vehicles. This must also be proved by documents issued by the Customs Authority. The value of these exports would have to match the deficiency for which they are compensating.

DNE Photo
DNE Photo

Requirements for granting incentives on quantitative production

The incentives for quantitative production, when a certain number of vehicles are produced regardless of other specifics, are granted if companies are able to produce a certain number of vehicles within a certain timeframe.

The vehicle categories included in this incentive include passenger cars with engine capacities below 1,600 cc or the microbuses included in the programme’s first year with a total of 20,000 vehicles, 25,000 vehicles in the second year, 30,000 vehicles in the third year, 35,000 vehicles in the fourth year, 40,000 in the fifth year, 45,000 vehicle in the sixth year, 50,000 vehicles in the seventh year, and 60,000 vehicles in the eighth and last year.

The incentive for quantitative production is granted if the companies produce passenger cars with engine capacities below 1,600cc by 3,000 units in the first year, 3,400 units in the second year, 4,000 units in the third year, 4,600 units in the fourth year, 5,200 units in the fifth year, 5,900 units in the sixth year, 6,800 units in the seventh year, and 8,000 units in the eighth and last year.

The quantitative production incentive is granted to manufacturers of pickups or heavy and medium-sized vehicles when they achieve 20,000 vehicles in the first year, 24,000 vehicles in the second year, 28,000 vehicles in the third year, 32,000 vehicles in the fourth year, 36,000 vehicles in the fifth year, 40,000 vehicles in the sixth year, 45,000 vehicles in the seventh year, and 50,000 vehicles by the end of the programme.

The production amount will be recognised by a certificate issued by the entitled authorities.

If the quantitative production ratio is less than the specified minimum, companies will complete the remaining ratio by exporting locally manufactured components for vehicles or complete vehicles in accordance with terms and conditions, regulations, and procedures of the authority. This must be provided through submitting customs statements, which should include a list of exported items and the export process completion certificate. The value of exports must be equal to the shortage that is required to be fulfilled.

The local manufacturing of vehicles must be no less than a 45% ratio for passenger cars, 48.5% of transportation vehicles that can carry between 10-16 passengers, and transportation vehicles that can carry goods of up to 9 tonnes, according to regulations and procedures.

Conditions for granting the export incentive

The export incentive is granted to companies assembling vehicles and those committed to the export ratios of locally produced vehicles or producing locally manufactured components.

Export ratios related to vehicles or vehicle components reach 25% in the first year, 26% in the second year, 27.5% in the third year, 30% in the fourth year, 32.5% in the fifth year, 35% in the sixth year, and 37.5% in the seventh year, and 40% the eighth year of the programme.

Export ratios for vehicles or components that are entirely locally manufactured reach 75% in the first year, 78% in the second year, 83% in the third year, 91% in the fourth year, 99.5% in the fifth year, 108% in the sixth year, 116.5%in the seventh year, and 125% in the eighth year of the programme.

Companies should prove the exports by providing a customs statement that includes a list of the exported items and the export process completion certificate. They should also notify one of the banks with the value of these exports—to settle any pending debts between both parties through an account statement and a deduction notification of the transaction.

The export ratio is calculated from vehicle components based on the value of the production of local assembly companies, or customs invoice statements on the value of imported vehicles.

The local manufacturing ratio of vehicles must be no less than 45% for passenger cars and vehicles that transport between 10-16 passengers, 48.5% for vehicles transporting goods of up to 9 tonnes, according to the terms and conditions applied on the concerned parties in this regard.

Exports that belong to the programme are not enjoying what is mentioned in article 8, which is compensating the shortage with an incentive provided by other systems in order to support exports. Companies and institutions benefiting from the programme should provide a certificate accredited by the export development fund—because a customs’ statement provided for obtaining the incentive doesn’t include the fund’s support of roughly 40% at maximum.

In terms of feed-in industries exports, in order to benefit from the quantitative production, industry reinforcement, or export incentive, it should be accounted for more than the average value of the companies’ exports in the last three years—which is determined by the concerned authority to be more than a 45% ratio.

The regulation of article 14 explained that the customs tariff fees on imported components from the complete manufactured vehicles item will be discounted according the local manufacturing accomplished ratio. The competent authority shall verify the local manufacturing ratio in accordance with the terms and conditions, and send a letter to parties entrusted with the implementation.

On the other hand, the law grants in article 6 an incentive to encourage the automotive industry with 23.05% for passenger cars of 1,600 cc capacity, 50% for a class of 1,600-2000 cc, and 57.45 for what’s larger than 2,000 cc.

Microbuses that accommodate 10-16 passengers are granted an incentive ratio of 23.05%, vehicles transporting goods that do not weigh 5 tonnes are granted an incentive ratio of 16.65%, and vehicles transporting goods that weigh 5–9 tonnes are granted 9.05%.

This incentive is calculated from the value of a bill that includes the car’s cost and total taxes imposed on it.

The incentive will be granted according to specific cases, which are increasing the local manufacturing ratio in locally produced vehicles gradually during the years of the programme. This will register 60% for passenger cars and microbuses and 70% for pickups of small and medium size. If the ratio of the local manufacturing decreased to less than ratios specified in the regulations, the remaining ratio should be completed by exporting local components or exporting entire vehicles produced locally in order to obtain the incentive.

It is also possible to obtain the incentive if the company’s production registered 60,000 passenger cars or microbuses with a 1.6 litre capacity, and 8,000 cars with more than 1.6 litre capacity, and 50,000 transportation vehicles.

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