ETA considers including electric cars in discounted VAT or exempting them

Ahmed Farahat
5 Min Read

The government, represented by the Egyptian Tax Authority (ETA), is considering introducing a package of incentives to encourage companies to use and manufacture electric cars locally to help reduce carbon emissions and reduce the subsidy bill for imported fuels.

The government is currently conducting a series of environmental and industrial studies to measure the impact of the use of electric cars on the environment, and the size of the savings realised from their use. It is also working on preparing the infrastructure for its use by setting up recharge stations for these types of cars.

Government sources told Daily News Egypt that the automotive sector had called for a set of incentives to encourage investors and international companies to manufacture locally, whether traditional or electric cars.

He pointed out that the demands include reducing taxes and customs duties, which are currently being studied by the ETA, with the development of tax advantages, including setting a low value-added-tax (VAT) by 1% similar to cars of 1,100cc or completely exempting these cars from VAT. All studies are still in the initial study stage.

The source said that the high price of electric cars is one of the challenges facing these cars, which require stimulation in the light of global trends.

A number of tax experts put forward a set of incentives to encourage the introduction of electric cars in the coming years. These include exempting the final product from paying the VAT or placing a tax rate lower than the current general rate, in addition to exempting them from a development fee, or reducing the income tax on the companies that manufacture electric cars to 12.5-15% instead of 22.5%.

Mamdouh Omar, a tax consultant with the Ernst & Young, and former head of the ETA, said that the government should encourage the automotive industry within the market to exempt the final product from the VAT or put a tax-free rate of 5%.

“It is necessary to measure the size of fuel consumption and its cost on the public budget in view of the value of the tax collected from electric cars,” he said.

The net subsidy since the fiscal year (FY) 2011/12 to the current FY has reached EGP 251.6bn, after excluding the taxes collected from the Egyptian General Petroleum Corporation (EGPC) worth EGP 332.8bn in that period, as well as the profits from this sector estimated at EGP 148.5bn, in addition to royalties estimated at EGP 47.5bn.

Meanwhile, the taxes and fees collected from cars according to the official data of the ministry of finance over the past eight FY amounted to about EGP 25.6bn, thus the tax collected from cars represents 10% of net subsidy costs for cars in that period.

He added that there are currently no exemptions for electric cars from the VAT, but subject to a tax rate of 14%, while gasoline-powered cars are subject to VAT and table tax based on each model’s litre capacity.

Omar also called for the exemption of electric cars from paying the development fee as a kind of incentive and to preserve the environment.

In a related context, Ramy George, a tax partner at Deloitte – Saleh, Barsoum & Abdel Aziz company, called for a reduction in income tax on companies that manufacture electric cars to range between 12.5 and 15%, as the sector is riskier than other economic sectors, which would prompt investors to invest in it and stimulate local industry.

George said it would be better to exempt these cars from the VAT rather than to reduce the tax, because applying two tax rates was a tax conflict, which was similar to the situation with sales tax.

He noted that a number of European countries have begun to put in place controls for the replacement of gasoline cars with electric cars, such as France and Germany.

He explained that incentives for electric cars will create a competitive market, and will encourage automotive companies to manufacture electric vehicles in Egypt.

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