Download doubling exports: the new tax rebate system

POSITION PAPER
TAX REBATE SYSTEM
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While fully understanding the new tax rebate system’s complexities and intricacies in
terms of pressure exerted by the People’s Assembly and the scarcity of resources due to
the augmenting government deficit the American Chamber of Commerce in Egypt
(AmCham) is convinced that any export promotion system must maintain
competitiveness and market niches in global markets as exiting from the market means
no return in the near future.
Success stories of leading developing country exporters have been driven by government
supported export incentive regimes (see Table 1). For example, in Brazil, exported goods
and services are exempted from roughly 30% of product price in the internal market as
industrial product and sales taxes are not levied. In Malaysia, the government offers lowcost (subsidized) export credit schemes to assist countries to import Malaysian palm oil,
disbursing approximately USD180 million to date only for its palm oil exports. In China,
the government provides tax rebates on over 3,200 export products, discounted interest
rates and funds for research. China also offers export-oriented tax incentives, where taxes
are reduced by as much as 50% for export-oriented enterprises exporting 70% or more of
their total annual output, as well as full refund of customs duties and VAT on capital
equipment used to produce export products. In addition, all the above countries offer
export-supportive currency exchange regimes and interest rates.
AmCham members fully acknowledge and understand the centrality of exports in the
objectives of the Ministry of Trade and Industry’s (MTI) recently announced 4-year plan:
to double non-oil exports from 95 billion LE to 200 billion, increase investment by LE 60
billion, create 200,000 jobs, and upgrade the skills of 600,000 workers to the highest
international standards.
Given that Egypt’s non-oil exports remain modest - 0.1% of the world’s exports, putting
it on par with countries such as Tunisia, and behind emerging economies such as Brazil
(1.6), Thailand (1.5), India (1.4), South Africa (0.7) and Philippines (0.5) - AmCham
believes that the government and the Exports Promotion and Development Fund’s (EDF)
efforts in the People’s Assembly to pass the new ‘Tax Rebate System’ have been both
timely and crucial.
AmCham members commend the government and the EDF for their tireless work in the
People’s Assembly and congratulate them on their success. The propensity of countries to
incentivize their exports compels Egypt to do the same, simply to remain competitive. In
this context it is worth noting that developed countries by far outspent the developing
countries in their subsidy outlays.1
Incentivizing Egypt’s exports and ensuring its competitiveness in the global market is a
prerequisite to doubling Egypt’s exports as described in MTI’s 4-year plan.
However, the new tax rebate system differs considerably from the previous export
incentive EDF program as it is based on value added and geared primarily towards
deepening Egyptian industries.
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In 2003, 21 developed countries spent almost $250 billion out of the over $300 billion spent worldwide on
subsidies, WTO, World Trade Report: Focus on Subsidies, Geneva, 2006.
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AmCham exporting members have vested interests in working closely with the
government and the EDF to guarantee the doubling of our exports and to preserve our
competitiveness in the global market. They also feel that combining support of the
national industries together with promotion of exports – though praiseworthy – is not an
easy task.
Furthermore, AmCham members firmly believe that it is neither the intent nor in the
interest of Egypt’s government to undermine exporters who have already established
their market niches and proven to be competitive in the world market.
Competing in the world market is not a foregone conclusion. It requires long years of
investment, technology, training, etc. and has to be nurtured in the face of the global
financial crisis and fierce world competition.
Yet, to guarantee competitiveness, AmCham exporting members would like to propose
the following:
o While there are long-term economic and social benefits of the new tax rebate
system in deepening national industries, the two-month period given for
companies and exporters to establish new internal disciplines to upgrade their
local suppliers is insufficient, especially in light of the fact that the incumbent
export incentive regime was supposed to end in 2012.
o Prioritizing labor content does not mean undermining potential and real exporters;
therefore it is of utmost importance that the new tax rebate system is fair and just
to exporters who have a positive impact on the economy in terms of job creation,
hard currency and wealth distribution. In spite of scarce resources, the new tax
rebate system should be worked out to entail a two-tier program, combining the
value added tax rebate system on par with a system that promotes exports.
o Lastly, AmCham members are still not fully aware of the new system’s final
guidelines and are convinced that it has to be studied on a case by case basis
(industry and company).
o In this context, we would like to preserve the right of our members to come
forward with their suggestions on the new tax rebate system, and also encourage
MTI to consider their concerns for the benefit of Egypt’s economic development
and growth.
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Brazil
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Thailand
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India
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Indonesia
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Turkey
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South Africa
Philippines
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2
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13
16
17
18
21
20
24
32
46
48
49
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Egypt
Tunisia
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Morocco
Based on national statistics
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Rank (Top 50 Leading
exporters)
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Export promotion
programs 7
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Government restrictions
on exports of raw
materials
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Reduced prices of energy
inputs
Malaysia
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Government provision of
good and services 6
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Reduction of purchase on
domestically-made goods,
machinery & equipment
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Exemption of customs
duty on imported capital
equipment
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Special Free trade Zones 5
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Preferential loans from
state-owned banks
Debt forgiveness
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Export credit insurance 4
Debt to-equity
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Funds for market
research/Technical
Assistance
Drawback regime 3
China
Tax exemption/
reduction 1
Export credit
Government grants to
promote production of
exports 2
Table 2: Government Supported Export Incentives: Developing Countries
1- Tax exemption/reduction : The allowance of special deductions/exemption directly related to exports or export performance, over and above those granted in respect to production for domestic
consumption.
2- Government grant: Bounty, contribution, gift, or subsidy (in cash or kind) bestowed by a government or other organization (called the grantor) for specified purposes to an eligible recipient
(called the grantee). Grants are usually conditional upon certain qualifications as to the use, maintenance of specified standards or a proportional contribution by the grantee or other grantor.
3- Drawback regime: A situation in which a duty or tax that has been lawfully collected is refunded or remitted, wholly or partially, because of a particular use made of the commodity on which the
duty or tax was collected.
4- Export credit insurance: Protection for an exporter against a foreign customer’s failure to pay for most reasons.
5- Special free trade zone: Special areas of a country where some normal trade barriers such as tariffs and quotas are eliminated and bureaucratic requirements are lowered in hopes of attracting
new business and foreign investments.
6- Government provision on goods and services: The provision by governments or their agencies either directly or indirectly through government-mandated schemes, of products or services for
use in the production of exported goods.
7- Export promotion programs: Programs designed to attract more firms into exporting by offering help in product and market identification and development, pre-shipment and post-shipment
financing, training, payment guaranty schemes, trade fairs, trade visits, foreign representation, etc.
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