 |
Al-Ahram Weekly 7 - 13 October 1999 Issue No. 450 
|
||
Published in Cairo by AL-AHRAM established in 1875 |
| ||
|
Al-Ahram Weekly 7 - 13 October 1999 Issue No. 450
|
||
| Published in Cairo by AL-AHRAM established in 1875 |
| ||
Egypt Region International Economy Opinion Culture Interview Features Profile Travel Living Sports People Time Out Chronicles Cartoons Letters Promotion or proclamation?
By Mona El-FiqiFor years exporters have been calling for tax exemptions for their export activities. Such exemptions would assist them in exporting Egyptian products at competitive prices. This is not the case at present due to the many taxes imposed on them.
At the end of August, the government finally announced a long-awaited decree lifting all taxes from firms engaged in export. The exemption covers all companies with an independent budget for export activities. Still, exporters are sceptical of the efficacy of this decree.
Although the government declared that the export-promoting measures will be effective immediately, covering all forms of taxes including those levied on trading and manufacturing profits, exporters say that nothing concrete has materialised so far.
Businessmen also claim that the decree is ambiguous because it does not state clearly whether the exemptions are for commodity or services exports or both. Nor does it specify whether it is the producer of the export commodity or the exporter who will benefit from these exemptions.
As a result of these reservations on the part of exporters, the Export Committee of the Egyptian Businessmen's Association (EBA) is planning to present a memo to the government sometime next week.
Taher El-Sherif, EBA secretary-general, told the committee last week that if the government was "serious" when it announced the decree, a presidential decree would have been issued putting the new measures into effect.
Business circles are also wondering whether the decree will pass through parliament, or whether it will be issued as a presidential decree during the parliamentary recess, and then be approved later when the legislative body convenes in November.
Naela Allouba, chairman of the EBA Export Committee, says that waiting for parliament to discuss and approve the decree in November will have a "negative impact on export business". After the new tax exemptions were announced, importers abroad asked Egyptian exporters to decrease the prices of their exports, according to Allouba. "The situation will badly affect our business, because nothing concrete has been done so far. All we see actually is [government] declarations in the newspapers," Allouba said.
While some exporters doubt the government is serious about tax exemptions, others argue that the text of the decree as published in the newspapers has many loopholes. "The decree was hastily decided so it will take some time before it sees the light," said Ali Eisa, chairman of the EBA Agricultural Committee. Moreover, if the decree were to be applicable only to commodities exports and would not cover services exports, then "it would be illegal", according to Eisa.
Companies whose income statements include sources of income other than export-related activities will also face a problem since the decree stipulates that only export-related income will be tax-exempt. "In this case, it will not be easy to separate the budget for exports from the rest of the company's budget," said Helal Sheta, deputy chairman of the Exporters' Division at the Federation of Egyptian Chambers of Commerce. "Exporters are anticipating problems with officials in the Tax Authority in this respect," Sheta added.
The heavy taxes levied on exports have long been a sore point with businessmen. Reports prepared by the exporters' division in recent years recommended that taxes on exports be lifted. "But when it did happen, exporters were not given the chance to discuss the decree with officials in order to eliminate loopholes," Sheta said.
Exporters believe that government efforts to help strengthen Egyptian products' competitive position in the global market are still not good enough to attain the national export target of $10 billion in the year 2005. Egypt's export performance in the past two years indicates that it will be "impossible to reach this goal", Sheta said.
According to the Central Agency for Public Mobilisation and Statistics, Egypt's export volume was reduced from LE13 billion in 1997 to LE10.7 billion in 1998, while at the same time, imports grew from LE44.9 billion in 1997 to LE56 billion in 1998. The trade deficit, which in 1997 was LE31.5 billion, grew to LE45.1 billion in 1998.
Sheta cited as "optimistic" a recent statement by Minister of Trade and Supply Ahmed Guweili that Egypt's export volume in 1999 is expected to be "better" than in 1998.
Although the quality of Egyptian products has improved to meet international standards, they remain at a disadvantage compared to other competitors because of their often higher prices. "Their high cost is the main, in fact, the only problem which Egyptian exports face. Our products cannot compete in global markets because they are expensive," said Sheta.
Also, the tax exemption decree, even if implemented, will not redress all exporters' problems such as those arising from the "drawback system", and high interest rates which contribute to the high cost of Egyptian exports.
Through the drawback system, exporters are repaid the customs duties which they pay on imported materials used in local manufacturing of export products. But instead of acting as an incentive to exporters, the drawback system has added one more financial burden which has resulted in increasing the cost of Egyptian exports. Summarising bluntly, Sheta said, "We never take our money back."
The government "should not discriminate" between the private and public sectors when implementing the drawback system, and should offer the same facilities to both sectors. When applying the drawback system, public sector companies need only present a written commitment that they will pay the customs fees once the imported material is re-exported. The private sector, on the other hand, must pay the fee in cash before it exports goods.
Another system irking exporters is the tax rebate system, which was devised to facilitate customs repayment to the private sector. Exporters complain that the system, though commendable in theory, is often hampered by practical inefficiencies making its implementation difficult.
As an added incentive, exporters should also be granted lower interest rates on their loans to encourage them to invest in export-oriented projects, said Sheta.
