Last week's sudden decision to drastically reduce import duties on cars is promising to revive the market. Yasmine El-Rashidi reports The reduction of custom tariffs on cars from 104 per cent to 40 per cent has triggered much chatter in both the market and on the streets -- giving new impetus to both the long-ailing economy, as well as a general public that had mostly given up hope of ever owning their own car. The car import cuts were just one part of overall reductions of custom duties on 6,500 products approved by President Hosni Mubarak early last week. They represent the first significant reductions in the sector, and follow years of anticipatory hope. Now that they are a reality, the market is anticipating increased sales, and an overall boost in activity and investment. "This is extremely positive, and in theory will significantly boost business," Hazem Moussa, founding partner of Contact cars, an automotive financing firm, told Al- Ahram Weekly. "It came about quite suddenly, and people are still trying to figure out exactly what it means in terms of prices and so forth. One learns that it is always too early to say exactly what the impact of such a change will be on the market, but yes, it should certainly be a market catalyst." The reductions, which have been approved on cars with an engine size up to 1600cc (the small to midsize range), will affect both imported as well as locally assembled vehicles, much of the parts for which come from abroad. According to Karina Zeidan of Renault Motors, the decision means that, "cars in the 1000-1600 cc range will see tax reductions of between 40 to 100 per cent. The impact will be most felt on cars in the 1300-1600 cc range, given that they had the highest import tariffs" of the cars that will be affected by the new decrees. Import tariffs on 1000 cc cars were already at 40 per cent, Zeidan said, "so there's no change there." Cars in the 1300- 1600cc range, however, used to be charged customs duties of 104 per cent, which means the drop to 40 per cent is highly significant. For cars in the 1000-1300cc range, the import duties formerly stood at 55 per cent, making the drop just 15 per cent. With locally assembled vehicles, the change will also be relatively marginal. Car components were previously taxed at a rate of approximately 20 per cent, depending on the component. That tariff has now decreased to between 7-10 per cent, again depending on the specific part. For Renault, for example, the reductions mean that the price of the 1600cc Megane has dropped by about LE35-40,000; the 1200cc Cleo has gone down by LE7- 8,000. The price of the Toyota Corolla -- one of the most popular midsize vehicles on the local market -- has gone down from LE140,000 to LE105,000. In general, for cars in the LE170,000 range, customers are now looking at prices in the mid- LE130,000 range. "It's a significant drop," said Moussa. "Undoubtedly, it will revive the market. It's a nice change -- a step in the right direction." The reductions closely follow recent government efforts to increase state revenues and contain a fast-swelling budget deficit (LE52.5 billion). The car industry was among those hardest hit by three pieces of legislation that mandated additional taxes on a number of services and products. A three per cent development tax, for instance, was imposed on locally manufactured cars ranging from 1000-1600cc. The same tax went up to five per cent on cars from 1600-2000cc, and 8.5 per cent on cars above 2000cc. The increases had caused an outcry, infuriating dealers, customers, and analysts, with the likes of Salah El-Hadari, head of the Federation of Egyptian Industries- affiliated Vehicle Manufacturers Association (VMA), expressing fear that the situation would only get worse. This most recent change was thus received with much applause, serving to quell growing resentment towards the government regarding the nation's economic woes. El-Hadari and other analysts -- along with the general public -- expressed their optimism regarding this latest move. "For years now, we have been faced with one price increase after another," Hassan Torki, owner of a small chauffeuring service, told the Weekly. "Even for those who don't want to buy a car, and can't afford it by any means, it is exciting news. It makes us feel that there is actually hope of things changing." The economy has found itself hard hit by potholes over the past two years, with the pound continuing to depreciate, and prices rising at a furious pace. Over the past year and a half -- since former Prime Minister Atef Ebeid announced the flotation of the pound -- the value of the dollar vis-�-vis the pound has gone up by a massive 40 per cent. Coupled with the tax increases, the automobile market was in serious doldrums. The most recent official figures show that new car ownership fell from 85,000 in 2000 to 55,000 in 2002. Car ownership in Egypt is estimated at around 22 per 1,000 people, compared to 35 per 1,000 in Iran and more than 100 per 1,000 in Saudi Arabia. Sales in 2003 were estimated at 52,000 vehicles, 32,500 of which were locally manufactured. Market surveys show that vehicles with engines smaller than 1000cc constitute only two per cent of the total market, while at least 86 per cent of locally manufactured vehicles fall within the 1000- 1600cc range. Cars above that capacity are charged up to 135 per cent in customs fees and 45 per cent in sales tax. While the new prices were still not in effect as the Weekly went to press, they were expected to be available beginning today. Those car dealers, meanwhile, still in possession of major stocks of cars brought into the country before the cuts came into effect are hoping the government will subsidise them for the losses they are now sure to incur. "Those with stock will probably end up in a big mess," said Hisham Sweify of Sweify Cars. "They [the government] say they are trying to solve that problem now, but if they happen not to deal with it, some dealers are not going to be very happy." Sweify said he knew of a dealer with a stock of 1000 cars. All the same, for Sweify the import reductions arrived just in time. Over the past year his business had dropped dramatically. "Two years ago I had plans to open another showroom," he said. "This past year, I've just managed to keep this one going. The tax increases a few months ago came as the final blow. Hopefully, this will pull things up again. As the newspapers said," he laughed, "these cuts are good for everybody. " (see p.5)
