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Al-Ahram Weekly 9 - 15 September 1999 Issue No. 446 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 9 - 15 September 1999 Issue No. 446
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Focus Culture Features Books Special Profile Travel Living Sports People Time Out Chronicles Cartoons Letters 'A matter of life and death'
By Gamal Essam El-DinEgyptian potato producers and exporters are holding their breath in anticipation of a decision by the European Commission on whether the EU will allow the entry of Egyptian potatoes and under what conditions. The decision is expected to be made this month when the European Commission's Standing Committee on Plant Health meets. The committee, which is made up of the 15 European Union (EU) member states, looks at issues regarding plant health in Europe. In a policy statement to the People's Assembly last December, Prime Minister Kamal El-Ganzouri said that boosting exports had become "a matter of life and death." El-Ganzouri promised that the government would do its best to remove the excessive fees, taxes and bureaucratic procedures that dog exporters' efforts. Eight months after El-Ganzouri delivered this promise, something concrete was finally done last week.
The cabinet decreed on 30 August that companies entirely involved in export activities will be exempt from all taxes, including tax on commercial and industrial profits. The tax exemption also applies to companies that have a separate budget for their export activity.
According to Cabinet Affairs Minister Talaat Hamad, these tax exemptions, which will cost LE50-70 million in lost revenues, are part of the government's campaign to increase exports "by encouraging a greater number of private sector companies to turn to export and marketing as their prime and specialised fields of activity."
The new tax breaks, which will require two legislative amendments to the unified tax and corporate companies laws, are due to come into effect through a presidential decree that will be issued before parliament convenes in November. According to the constitution, the president is empowered to issue presidential decrees which become law while parliament is in summer recess.
Economists, businessmen and exporters agree that the new tax exemptions are evidence of the government's keenness to relieve exporters of exorbitant taxes and simplify the maze of bureaucratic procedures impeding the competitiveness of Egyptian products in foreign markets.
Mamdouh Thabet Mekki, deputy chairman of the People's Assembly Industrial Committee and a prominent businessman, wholeheartedly welcomed the new tax breaks but said they should be complemented by further steps. Elaborating on the cabinet's move, Mekki explained to Al-Ahram Weekly that tax breaks on export activities are currently granted by two laws. The first of these is the unified tax law which allows tax exemption on the export profits of ordinary industrial and commercial activities. "This law exempts the first LE8,000 and 30 per cent of any further net profits from all taxes. The remaining 70 per cent is taxed in bands ranging from 20 to 40 per cent," Mekki said. The second law gives a maximum 32 per cent tax exemption on the export activities of corporate companies.
As a result, Mekki said, the cabinet's recent tax breaks will have a double effect: "They will reduce the export costs of industrial and commercial businesses by up to 40 per cent and those of corporate companies by up to 32 per cent. At the same time this reduction, all in all, is expected to boost Egyptian exports by 15 per cent over the next two years."
A statement released by the Federation of Egyptian Industries (FEI) asserted that, in cash terms, the new tax breaks, for which more than 20,000 industrial companies in 14 sectors will be eligible, could contribute to raising the total value of export revenues to $10 billion in the next five years.
Mekki stressed that export promotion is not only a matter of tax exemptions. "We need to move completely away from the anti-export bias which continues to exist in some government circles," he said. Part of the weak performance of the export sector, he added, is rooted in the public sector monopoly that still exists in certain export-related services. "Port services, although formally opened up to private competition two years ago, are still dominated by public sector companies imposing high charges -- up to 10 per cent of the value of exports." Mekki also pointed to EgyptAir's monopoly of the air freight business, which raises the cost of exports and reduces their competitiveness, especially in European markets.
For more than two years economists have been disturbed by the persistently weak performance of the export sector and the problems facing it. In the first half of last year, according to statistics released by the Central Agency for Public Mobilisation and Statistics (CAPMAS), the value of exports dropped by 19.7 per cent while the value of imports grew by 23.9 per cent. In the first half of this year, however, things have improved slightly. According to CAPMAS statistics the value of non-oil exports increased by 6.8 per cent over the first six months of this year, or from LE3.7 billion to LE4 billion, while non-oil imports dropped by 1.5 per cent or from LE26.4 billion to LE25.8 billion during the same period.
Economist and former economy minister Mustafa El-Sa'id sees the long-awaited tax exemptions as a truly positive step, but "the private sector itself is to blame for the export crisis in Egypt," he said. According to El-Sa'id, this sector has been mostly concerned with real estate investment and manufacturing assembly at the expense of export-led activities. "Due to this, the private sector has failed to take advantage of all the export incentives offered by the government over the last two years," said El-Sa'id.
The new tax breaks, however, reflect not only government commitment to promote exports but also an attempt to win the support of business circles ahead of an anticipated cabinet reshuffle next October. El-Sa'id argued that the latest liquidity squeeze to hit Egyptian banks was primarily due to the shortage of hard currency receipts which are generated by exports. "The government was conscious of this and of the need to reach a level of exports capable of sustaining growth with high population rates," he said.
According to Abul-Sa'oud Sultan, chairman of the General Committee of Egyptian Exporters of the Federation of Egyptian Chambers of Commerce, for the new tax exemptions to really reap any benefit they must be accompanied by clear-cut executive regulations on their implementation.
"In 1998, a number of decrees were issued to reduce export fees at ports, but they have still not come into effect because of protracted bureaucratic complications," said Sultan. In this respect, he expressed fears that the maze of Egyptian bureaucracy could deprive many companies from benefiting from the new tax breaks. Sultan also recommended that the new tax breaks be applied to all types of exports, whether undertaken by companies, individuals or institutions.
According to a Shura Council report issued last year, bureaucracy represents between seven and 10 per cent of export costs.
With regard to agricultural exports, Abu-Bakr El-Basel, chairman of parliament's Agriculture Committee, has called for the exemption of capital goods from a current five per cent sales tax, as is done in many countries which have adopted export promotion as a national goal. To further improve the sector, El-Basel believes that "integrated pest control methods in agricultural production should be implemented on a wide scale as the use of chemical pesticides has become a major obstacle to the flow of Egyptian farm exports into European markets."
El-Basel was also in favour of the new tax exemptions, but said that this step would be more beneficial if it were followed by the phasing out of a six per cent service fee charged by the Customs Authority on exports. "This fee is illegal because the service is part of the authority's job," said El-Basel.
For their part, government officials, especially in the Finance Ministry, announced that they would do all they could to ensure the smooth implementation of the new tax exemptions. According to El-Sa'id it is extremely important for these tax breaks to come into effect as soon as possible. "It will show that the government is not merely out to win support ahead of next October's expected cabinet reshuffle, but that it really sees export promotion as a matter of life and death," he said.
