POSITION PAPER
                                            TAX REBATE SYSTEM

       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 low-
        cost (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.

 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.

   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.

Table 2: Government Supported Export Incentives: Developing Countries

                                                                                                                                                                                                                                                                    domestically-made goods,

                                                                                                                                                                                                                                                                    Reduction of purchase on

                                                                                                                                                                                                                                                                                                                         Reduced prices of energy
                                                                                                                                                                                                                                                                                               Government provision of
                                                                                                                                                                                                                                         duty on imported capital

                                                                                                                                                                                                                                                                                                                                                    Government restrictions
                                                                                                                                                                                                                                                                     machinery & equipment
                                                                                                                                                                                    Preferential loans from

                                                                                                                                                                                                              Special Free trade Zones
                                     promote production of

                                                                                                                                                                                                                                          Exemption of customs
                                     Government grants to

                                                                                                                                                          Export credit insurance

                                                                                                                                                                                                                                                                                                                                                                                                 Rank (Top 50 Leading
                                                                             Drawback regime 3

                                                                                                                                                                                      state-owned banks

                                                                                                                                                                                                                                                                                                                                                                              Export promotion
                                                                                                                                                                                                                                                                                                                                                      on exports of raw
                                                                                                                                      Funds for market
                                                                                                                  Debt forgiveness

                                                                                                                                                                                                                                                                                                 good and services
                    Tax exemption/

                                                                                                 Debt to-equity
                                                             Export credit




China                   √                    √                √                √                  √                 √                       √               √                              √                    √                                 √                          √                        √                         √                            √                     √                   2
Malaysia                √                    √                √                √                                                            √               √                              √                                                                                                                                                                                       √                13
Brazil                  √                    √                √                √                  √                 √                       √               √                              √                                                      √                          √                        √                                                                            √                16
Thailand                √                    √                                                                                                                                                                                                    √                                                                             √                                                  √                17
India                   √                    √                                 √                                                            √                                              √                                                      √                          √                        √                                                                            √                18
Indonesia               √                    √                                 √                                                                                                                                                                                                                                                                                                                    21
Turkey                  √                    √                √                √                                                            √               √                              √                    √                                 √                          √                        √                                                                            √                20
South Africa                                 √                                                                                              √                                              √                                                                                                                                                                                       √                24
Philippines             √                    √                                                                                              √                                                                                                     √                                                   √                                                                                             32
Egypt                                                                          √                                                                                                           √                    √                                                                                                               √                                                  √                46
Tunisia                                      √                                                                                              √                                                                                                                                                                                                                                      √                48
Morocco                      √                                                                                                                                                                                                                    √                                                                                                                                                 49
Based on national statistics
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
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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