Automotive sector prepares memorandum on automotive industry strategy

Proportions of components in export incentive will increase to 100% instead of 25%

Major importing companies operating in the automotive sector are preparing to submit a memorandum to the parliament's Industry Committee within two weeks. The memorandum will include importers' demands of the automotive and feeding industries development draft law.
Parliamentary sources told Daily News Egypt that the committee discussed the demands set forth by a number of car importers in the local market related to the automotive and feeding industries development draft law during their meeting on Monday.
The sources pointed out that the meeting took place with companies outside the House of Representatives. The companies present included Volkswagen, Seat, Kia Motors, agent of Brilliance, Daihatsu, and Ford Auto Jameel, besides a number of feeding industry companies.
Participants agreed to bring up the memorandum that includes suggestions from importing companies regarding the automotive industry strategy to the Industry Committee. It will be submitted to the committee within 15 days.
The sources added that companies discussed how to work with item No. 3 of Article 6 of the draft law, which grants encouraging incentives to exporting companies, whether they export cars or components. Companies will provide suggestions regarding that paragraph in a memorandum within 15 days.
Importing companies discussed the challenges faced by them in supplying locally manufactured components to the parent companies in order to benefit from the encouraging incentives for exports.
The third paragraph in Article 6 of the draft law states that exporting companies and institutions will benefit from the incentives under a number of conditions. These include exporting 25% of locally manufactured components or exporting the equivalent of 40% of the customs invoice of imported vehicles' value. They also include an export ratio of 75% of locally manufactured cars or exporting the equivalent of 125% of the customs invoice value for imported vehicles, in accordance with the timetable, rules, and procedures specified by the executive regulations, and on condition that the local manufacturing ratio of locally produced cars will not be less than 45% in passenger cars and vehicles with a capacity of 10-16 people, and 60% for vehicles to transport goods of up to 9 tonnes.
In this case, the incentive provides companies and automotive assembly institutions a deduction from the outstanding tax of industry development on the local product sold in the domestic market. As for companies and enterprises that import cars, the export incentive provides deduction from the industry development tax on its cars imports.
The executive regulations set export incentives conditions, as the value of the incentive will be granted to companies assembling vehicles or importing vehicles by themselves or through other exporters, granted they commit to the export ratios of locally manufactured vehicles or components produced domestically.
The export ratios of vehicle components during the first year will reach 25%, in the second year 26%, in the third year 27.5%, the fourth year 30%, the fifth year 32.5%, the sixth year 35%, the seventh year 37.5%, and 40% in the eighth year.
Export ratios of fully locally manufactured vehicles or components will 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.
Companies must prove export processes by providing customs statements which include exported items, completion certificates, and bank statements of the transferred value of exports. In case of debt between the two parties, settlement will be done through an account statement and deduction notification about the financial transaction.
The export ratio is calculated from the vehicle components' production value of local assembly companies, or the customs invoices value of imported vehicles.
The local manufacturing ratio of vehicles must not be less than 45% for passenger cars and cars that transport 10-16 people, and 48.5% for goods vehicles that transport 9 tonnes.
Sources revealed other details of the meeting between the parliament and the authorities concerned with the automotive feeding industries. The percentage of components for the export incentives were agreed to increase from 25% to 100%. They also agreed on removing the part concerned with car importers from the law, as well as not reducing the values reached even if they are beyond the minimum level mentioned in the law.
They also agreed on categorising incentives, especially for those who exceeded the minimum requirements of the law. The agreement also stipulated that a specialised lab is to be established from the tax proceeds in order to test components and products in Egypt, and demanded an export incentive for feeding industries, or removing the article about not benefiting from other programmes.
The Industry Committee in the parliament had decided three weeks ago to delay the discussion of the car manufacturing law indefinitely in order to continue the studies of the automotive industry strategy during the coming period.
A representative in the committee said that the upcoming period will witness an increase in studies with those interested in the industry, whether manufacturers, the Egyptian Automotive Dealers Association, or the Egyptian Auto Feeders Association.
He added that the committee has agreed not to rush issuing the law, adding that it requires more time to revise it until it takes its final form and adds value to the Egyptian economy. This requires more studies and consultations with specialists, especially manufacturers.
The source also explained that removing the article on deducting 0.5% of the sales of each company for the benefit of the Industry Development Fund from the draft law was met with total agreement.
The decision to postpone issuing the law has infuriated workers in the automotive sector, especially chambers of commerce and divisions related to the sector, as well as international companies working in the Egyptian market.
They said that this postponement will leave a negative impact on the sector, especially because everyone has been waiting for a quick issuance of the law to be able to decide on clear mechanisms to assemble car parts and production needs in Egypt.
The chairperson of one of the car assembly companies said that the postponement is catastrophic, especially because the reasons for it are weak. "The law is a lifeline for manufacturers at the moment, and continuous postponement will weaken the position of local companies before international companies that seek to increase production volumes and exports from Egypt," the chairperson said.
He added that with the postponement of the discussions related to the law in the parliament, many deals will not be settled, especially because the law has been under study for more than three years, which does not make sense, according to him.
The parliamentary Industry Committee has decided to hold hearing sessions with a number of representatives of car manufacturing companies, and companies that produce material inputs, in order to discuss their vision of the amendments under discussion.
The hearing sessions are expected to continue for a long time until the vision is made clear. Afterwards, the draft law will be discussed in a public session in parliament after receiving the final approval from the Ministry of Finance and the Ministry of Industry and Trade. Following this, the draft law would be sent to the Legislation Committee for approval.