The presence of hefty price tags on even the simplest cars is standard fare for Egyptian consumers used to the high import tariff rates.
High sticker prices combined with a slowly emerging auto finance market has made buying a car in Egypt a difficult financial prospect, especially in the wake of rampant inflation and the economic crisis.
But for those lusting after a quality affordable car, 2010 may be the year things change for the better.
Next year, Egypt is set to implement a program to reduce import tariffs on vehicles by 2019, in line with its commitments as a signatory of the World Trade Organization’s General Agreement on Tariffs and Trade (GATT).
GATT signatories are required to reduce tariffs to meet an international standard of 0-40 percent, a range that Egypt is well outside of when it comes to automotive imports.
According to Ali Tawfik, chairman of the Egyptian Auto Feeders Association, customs charges are based on the car’s engine power.
“For cars less than 1600 cc, customs are 40 percent of the price of the vehicle and sales tax is 15 percent, while for cars over 1600 cc, customs are 150 percent of purchase price and sales tax is 35 percent, Tawfik told Daily News Egypt.
He added that cars imported from countries such as Morocco under the Agadir Agreement are not assessed for customs.
For premium cars such as the Mercedes E-Class and BMW 5-series with engine power over 2000 cc, owners are assessed taxes equal to 2.5 percent of purchase price annually, with a 10 percent depreciation applied each year.
For vehicle owners, even those wealthy enough to purchase a luxury car in the first place, the added costs of annual customs payments can be crippling.
“My husband and I used to have a BMW X5, and the taxes were over LE 20,000 per year. Even though the car was in great condition we had to sell it very cheaply to get rid of it before the taxes ate up our whole income, said graduate student Marwa Ali.
On top of these charges, car owners pay a license fee based on the engine capacity of their vehicle and where the vehicle was assembled. This structure can sometimes lead to owners of less expensive cars paying more taxes.
“I have a Volkswagen Jetta, which is an LE 200,000 car, but since it’s not assembled in Egypt, I pay more license taxes than someone who has an LE 600,000 Mercedes or BMW assembled in Egypt, said Ehab Zaki, an accountant.
Despite the added costs of buying an imported car, the practice remains popular due to the conception that cars assembled abroad are superior.
Egypt currently imports over 25 different models of vehicles, and imported cars account for more than 70 percent of total car sales in the Egyptian market.
“Cars assembled in Egypt are not as well made as cars from outside, so it’s worth the extra cost to have a reliable vehicle, explained Zaki.
According to Tawfik, the presence of high tariffs on vehicles is preventing the local automotive industry from realizing its full sales potential.
“Customs make cars become more expensive than their original cost. When sales tax is added to this, people become less willing to purchase cars. If the customs are removed, there will an increase in sales as prices will be more competitive, he explained.
Local dealers agree with Tawfik’s assessment, saying that the elimination of tariffs could prompt a leap in sales figures.
“The decrease in customs will make the market prosper and the sales skyrocket. Egypt is the only country that imposes customs this high. I anticipate that car sales will increase from the current sales figures, said Radwan Fathy, branch manager at El-Masaoud dealership in Maadi.
“If, for example, I now sell 100 cars a month, after the customs decrease, I may be able to sell 200 cars. Especially for cars over 1600 cc, because the customs on them are currently very high, he continued.
While dealers could benefit from the forthcoming tariff reductions, the new rules could contribute negatively to Cairo’s already severe traffic and pollution problems.
“More people will be buying cars when the taxes go down and that means more people on the road, Fathy conceded.
“But that just means that the government will have to make road infrastructure a priority to accommodate all the new drivers, he continued.
While the official plan for reducing tariffs has not been made public to date, Tawfik says that a gradual reduction of customs on imported cars over several years can be expected, beginning with cars imported from Europe.
“Cars imported to Egypt from Europe will see a 10 percent decrease from the current customs rate starting in 2010, he said.
To read the other stories in our monthly special focus on Egypt s auto sector, click here:
http://thedailynewsegypt.com/admin/article.aspx?ArticleID=23948
http://thedailynewsegypt.com/admin/article.aspx?ArticleID=23944
http://thedailynewsegypt.com/admin/article.aspx?ArticleID=23945
http://thedailynewsegypt.com/admin/article.aspx?ArticleID=23946
