• Issue a binding decree or a law to address senior debt restructuring. Currently, banks face significant challenges when working with distressed businesses that are going through a restructuring process. Any liquidity provided by banks is directed towards meeting the distressed business’s debt obligations to sovereign creditors (e.g., taxes, customs duties, etc.) and thus the restructuring process is derailed and the banks are exposed to high-risk losses. Accordingly, the regulatory framework, whether a law or a decree, should obligate sovereign creditors to closely coordinate with banks when rescheduling senior debts of distressed companies. Adopting this recommendation will ensure the availability of adequate liquidity during the restructuring exercise, and at the same time, protect banks against the risk of loss.

• Do not impose a real estate tax in free zones, and consider exempting factories from such tax: In May 2018, the General Assembly of the Legal Opinion and Legislation Departments of the State Council issued a legal opinion confirming that business enterprises located in free zones are exempt from the taxes prescribed in Real Estate Tax Law No. 196 of 2008. This exemption is to take effect from the date on which the Investment Law No. 72 of 2017 entered into force. Article 41 of the Investment Law stipulated that free zone business enterprises shall not be subject to the provisions of the applicable laws on taxes and duties in Egypt, which includes the real estate tax.  Accordingly, it is not legally possible to require these enterprises to pay real estate tax starting June 6, 2017, the day the Investment Law entered into force. Compliance with the legal opinion of the State Council, and establishing a mechanism to ensure its implementation is yet to be seen. 

• End the freeze placed on the investment incentives scheme (both the tax and non-tax incentives), which are stipulated in Law No. 72 of 2017. This will contribute to boosting investment attraction efforts and achieving the goals behind these incentives. Additionally, activate the new set of tax incentives included in the amended Investment Law to encourage businesses to reinvest their excess profits, thereby increasing the rate of investment in Egypt.

• In spite of all efforts exerted to promote financial inclusion and limit cash transactions, a number of institutional and legislative barriers continue to persist.

• Address the legal and institutional barriers to creating a cashless economy.
• Expedite the issuance of the executive regulations of Law No. 18 of 2019— The Use of Cashless Payment Methods Law.

• On March 11, 2019, the House of Representatives passed a law to regulate the use of non-cash means of payment. Law No. 18 of 2019 was signed by the President and published on April 16, 2019. Issuance of the law’s executive regulations and its implementation and enforcement remain to be seen.  

• With few exceptions, all laws regulating sovereign payments do not include provisions that require electronic or bank payments. Currently, the use of an electronic payment mechanism is required only under Law 201 of 2014 (amending the Income Tax Law No. 91 of 2005) and Decrees No. 117 and 172 of 2015 issued by the Minister of Finance, which pertain to income tax payments.

• Amend the relevant laws regulating sovereign payments so that they mandate the use of bank or electronic payment methods for concluding transactions that exceed a prescribed threshold amount. The amendments should also allow the use of mobile payments for transactions that fall below the threshold amount.
• Enforce the law with respect to transactions carried out by the private sector or individuals if the transaction amount exceeds the thresholds stipulated in the law or its executive regulations, once issued.

• Law 18 of 2019 requires all government entities, state-owned companies, and private enterprises to use cashless means for making all payments to their employees, experts, and board and committee members, as well as the social insurance subscriptions. Besides, the law requires government entities and agencies, and public legal persons, referenced in Article 2, to pay all dues to contractors, suppliers, and service providers through non-cash methods, whenever the dues exceed a specified threshold amount to be specified in the executive regulations of the law.

• None of the laws regulating non-bank financial services include any provision that requires parties to use electronic payments or payments through bank accounts (e.g. Companies Law, Capital Market Law, Insurance Services Law, Mortgage Law and Financial Leasing Law). 

• Include new provisions in the laws regulating non-bank financial services, such that non-cash payment mechanisms—bank accounts or electronic means, including mobile phones—become mandatory for concluding any transaction that involves buying, selling, installment payments, lease payments, or others.

• Article 5 of Law No. 18 of 2019requires the use of non-cash payment methods, whenever the due amount exceeds a threshold to be specified in the executive regulations. This applies to the following payments: 

1. Taxes; customs duties; fees and fines.
2. Service fees and other dues owed to entities referenced in Article 4 of Law 18 of 2019. 
3. Cash finance installments, insurance policy premiums, syndicate subscriptions, and private insurance funds subscriptions. 
4. The disbursement of subsidies and donations through civil society organizations.

•  The collection of payments associated with the sale, lease, use, or usufruct, of land, property, or express transport vehicles, by the state authorities, juridical persons, and establishments referenced in Article 2 of the law.

• The National Council for Payments does not have in place a clear plan, with specific interim objectives to guide the universal implementation of the cashless payment system.

• The National Council for Payments should develop a national plan, which includes clearly defined interim objectives, well-developed implementation mechanisms, and criteria for measuring and assessing performance.

• The Minister of Finance announced that the rate of electronic collection of taxes and customs duties has increased.
• CBE has introduced a national e-payment system (Meeza Card), which provides users access to various financial services, thus enhancing financial inclusion. 
• The Minister of Interior presented an updated overview of the scheme to develop the national ID smart card.

• The disconnect between the government’s efforts to transition to a cashless economy and its digitalization plan.

• Transitioning to a cashless economy should not be limited to automation; rather, moving to cashless transactions is an integral part of the digitalization process. 

• Taxes place a significant burden on industrial activities as they result in higher prices, thereby making products less competitive. 
• The ambiguity of the law and its executive regulations opened the door to unduly discretion in interpreting the law and its regulations, which resulted in varying interpretations within the same agency. A good case in point is the tax treatment of specialized industrial processes related to a number of industries, including food, detergents pharmaceuticals, cosmetics, and paper pulp (e.g., pulp of wood or of other fibrous cellulosic material).

• Eliminate ambiguity in all tax-relevant laws, regulations and guidelines, and simplify them in order to limit the discretionary power of tax administrators.
• Form a small committee consisting of the directors of the Tax Authority and the Customs Authority, a deputy of the Minister of Finance, the chairman of the FEI (or who he may delegate), and representatives of the chambers of industry. The committee should be tasked with studying the tax- and customs-related procedural and legal obstacles facing industrial investors, coming up with practical solutions, and taking decisions that can have a quick impact on the ground.
• The Ministry of Finance should sign a protocol with the Organization for Economic Cooperation and Development (OECD) to develop tax treatment systems, which are aligned with global best practices in tax administration and enhance investor confidence in tax reforms.

• The continued practice of subjecting taxpayers to arbitrary tax assessments, and the disregard of balance sheets and tax returns that they submit.
• Prolonged delays in tax examination sometimes reaching 10 and 15 years, which result in businesses incurring additional financial burdens represented in delay penalties and an additional tax that exceeds the original tax.
• To interrupt the statute of limitations, tax offices issue arbitrary tax assessments that do not take into account the tax returns submitted by the business; the estimated tax liability may exceed sales. This practice complicates the process and results in a reassessment, even if five years (the statute of limitation period stipulated in the law) have already elapsed.
• On examining tax returns, tax officers disregard the records and documents submitted by the taxpayer; in this case, examining officers who claim that a violation exists must prove this violation and distinguish tax evasion from mistakes due to human error.
• A disconnect and lack of coherence among the various divisions within the tax office—the commercial inspection, the salary tax, the stamp tax, and deduction at source. This results in wasting the time of both the taxpayer and the tax officer since redundant files, containing the same documents, are prepared for examination by more than one officer, sometimes at the same time. The examination process must be consolidated to avoid wasting the time of taxpayers and tax officers.
• The Intransigence of the tax office with regard to the examination of tax files that are unlikely to generate revenues; no due regard is given to considerations related to tax compliance and satisfying all documentation requirements.
• Without first exhausting 
• all amicable options, tax offices rush to issue administrative orders to attach all funds belonging to a business, instead of attaching the equivalent of the amount of the taxes that is actually due; this practice disrupts the daily operations of the business until the attachment is lifted.

• Cease the practice of arbitrary tax assessments; ensure the full and consistent application of the law—tax returns submitted by investors must be honored. Conduct random reviews of tax returns, in case of inconsistencies, the tax returns should be reassessed.
• Tax authorities should endorse an enterprise’s approved balance sheets (prepared within the past five years), in order to resolve tax disputes and collect taxes due in a timely manner. 

• In some cases, the Tax Authority does not recognize double taxation avoidance agreements. This, in turn, has a negative impact on Foreign Direct Investment (FDI) flows to Egypt.

• Comply with the double taxation avoidance agreements in order to encourage the flow of direct foreign investment to Egypt.

• The imposition of a value-added tax on capital goods, which results in higher production costs and thus weakens competitiveness in international markets.

• Eliminate the VAT on capital equipment used in production.
• Tax returns should be filed electronically during the month following the end of the tax period.
• Include services in the exemptions stipulated in Article 27 of the VAT Law.
• Add “public entities” to the group of entities that qualify for VAT exemption as per Article27 of the VAT Law, which allows the Minister of Finance, in agreement with the competent Minister, to exempt some goods and services from VAT in the event that they are granted, donated or gifted to the administrative body of the state or local administration units.
• Upon departure, international visitors, who have stayed in Egypt for a period not exceeding 3 months, should be entitled to receive a refund of the taxes they paid to VAT-registered sellers for purchases of taxable goods, provided that the invoice value is not less than LE 1,500, and the purchased items leave the country with the visitor, or by another mean.
• Grant the head of the Tax Authority, or whoever he delegates, the authority to authorize a 3-month temporary release of incoming shipments that are designated to be used in production or for carrying out business activities; this authorization should be done in accordance with the guarantees that the Customs Authority deems appropriate until the concerned individual provides the Tax Authority, during that period, with the necessary documents for reviewing the exemption request, or otherwise pay the due taxes, along with any additional tax.

• The raising of the VAT registration threshold to LE500,000, in the accordance with the Value-Added Tax Law, will lead many enterprises to exit the formal economic sphere, and thus the state coffers lose out on potential tax revenues.

• Adopt a lump-sum tax regime, whereby a fixed amount of money is collected from enterprises—a flat tax. The collected amount should not be subject to any increase except if a review of invoices and other relevant documentation revealed that the amount of taxes due exceed the amount paid by the enterprise.  
• Give serious consideration to implementing the tax facilitation and procedural simplification measures proposed by the Ministry of Trade and Industry in the Micro, Small, and Medium-sized Enterprises draft law. 
• Develop a simplified tax system for small and medium-sized enterprises under the unified tax system in order to reduce the tax burden and compliance costs for these enterprises; at the same time, introduce a lump-sum tax regime tax for micro enterprises.

• On July 13, 2020, the President ratified the Micro, Small, and Medium-sized Enterprises Development Law (No. 152 of 2020); it includes provisions intended to facilitate financing and the starting up of operations, in addition to offering incentives for MSMEs, including permanent simplified methods for tax treatment. 

• The very lengthy process that exporters have to go through to reclaim the VAT incurred on inputs, raw materials, and supplies used in the production process; while the right to reclaim these funds expires in two years, the refunding process could take years.

• Streamline the VAT refund procedures for exporters and accelerate the release of the VAT refunds owed to enterprises so that they can recover their refunds before the lapse of the two years (the set timeframe for reclaiming refunds) and use them towards expanding production and exporters.

• The Decree No. 484 issued by the Minister of Finance imposes a late payment penalty for failure to pay the tax amount on time, regardless of the reason for the delay—whether it is a case of tax evasion, or the taxpayer is awaiting the resolution of a tax dispute.

• When imposing a late payment penalty on taxpayers, differentiate between cases of clear tax evasion and other cases which involve tax disputes. In the latter cases, no penalty should be imposed.

The imposition of a real estate tax on industrial enterprise and health care facilities.

• Enterprises across all industrial sectors suffer from the overestimation of the price per square meter of land and buildings for industrial establishments, and the consequent overestimation of the rental value; this has generated a general sense of discontent over the real estate tax in its current structure and resulted in continual disputes over these taxes.
• Some tax offices refuse to set up installment plans for paying the real estate tax debt; they insist that businesses pay the entire due amount in one single payment, otherwise, their bank accounts become frozen; in some cases, some businesses are threatened with other legal action. Such actions are taken without taking into account the economic situation of the business and its reputation, which may be tarnished in the eyes of the bank due to the freezing of accounts; such practices result in countless disputes and disagreements between the tax offices and business taxpayers.

• Issue a new law that eliminates the real estate tax on factories, health care facilities, and free zones.

• The existence of multiple tax files and taxpayer identification numbers for the same enterprise in different government entities.

• Issue a single national taxpayer identification number for each enterprise to be used for reporting the different types of applicable taxes (income tax, VAT, customs duties, insurance, and others).
• Introduce a method of combined reporting for VAT and income tax—filing a single tax return that combines the VAT return and income tax return. This will facilitate offsetting claims and obligations by the Tax Authority. 

Businesses face many problems with the temporary admission system, including:

• The procedures for releasing the letters of guarantee are lengthy and complex.
• Customs duties are imposed on imported factors of production, especially equipment and machinery, that are used in the manufacturing of export products. 
• Exporting is complex and time consuming.  It usually takes a year to conclude an export operation—from the time the bank guarantee is issued to the release of the shipment for exporting; this issue is compounded by the fact that these procedures are lengthy, and usually go beyond the grace period granted to investors (the period of time immediately after the arrival of the imported raw materials, during which investors should export their products).

• Adopt the system of risk management for customs control. Under this system, businesses with an established solid reputation as importers, as well as reputable suppliers and customs brokers would be cleared through the green clearance track (no inspection). At the same time, take necessary and adequate protective measures, and in the case of offences, impose punitive measures, including having offenders go through the red clearance track (inspection).  
• The Customs Authority should consider entering into arrangements with companies that have solid track records of fulfilling the customs requirements on time—whitelisted companies; the arrangements should contain stringent penalty clauses that are to be applied in case the company fails to abide with the rules and regulations.
• Amend Article 98 of the Customs Law No. 66 of 1963, as amended by Law No. 172 of 2018, concerning the temporary admission system. The amendment should include the following:

1. Extend the life of the temporary admission permit to four years.
2. Eliminate the requirement that importers submit a letter of guarantee, submitting an insurance policy should suffice. 
3. Eliminate the penalties imposed on surplus raw materials that were not used in production, paying customs duties on the surplus should suffice.
4. In collaboration with the Industrial Control Authority, simplify and facilitate the setting of input and output coefficients the waste percentages, and fix the rates to ensure fair treatment among exporters.

The New Customs Law No.207 of 2020 was issued, and among the most important features of it are the following:

• The law added to the places that judicial police officers have the right to enter the headquarters of exporters and natural and legal persons related to customs operations, including those located in economic zones of a special nature and free zones.
• Increasing the period of commitment to keep papers and documents to five years instead of three years previously, and in the subsequent review, it is permissible (in addition to reviewing the documents) to review the goods themselves, if any.
• Taxes and fees due may be recalculated.
• Fees have been imposed for services for the single window, prior inquiry, work outside official working hours or outside the customs office, and any other actual services provided by the Authority.
• Customs exemptions have become part of the articles of the Customs Law and not a separate law.
• The previous letter of guarantee was canceled before the recent amendments to the value of the customs tax, and it became a condition for exemption that the importer deposited with the Authority a guarantee of other various taxes and fees, and that the re-export takes place within one and a half years from the date of release, and it may be extended for periods exceeding one year.
• In the temporary release, the text has not yet specified the customs tax rates for machinery, equipment, devices and containers.
• Shipping lists – The text obliges the captain or agent of Al-Malhi to register in the manifest all the goods transported by sea and to sign this list, and if the goods are prohibited items, they must be recorded in the list with their real names, and the carrier or agent must ensure the identity and name of the recipient of the goods before shipment, and the recipient's acceptance of shipment, and the carrier or agent is obligated to re-ship the prohibited goods in the event that the data provided by him is incorrect and the person concerned does not progress to complete Customs procedures, if the carrier or agent does not return the shipment, it shall be executed at his expense under the supervision of the Authority.
• Pre-clearance – The law allows the importer or agent to take pre-customs clearance procedures and pay the taxes and fees estimated initially before the arrival of the goods to the territory of the republican customs tariff, and that the final settlement is made after the arrival of the goods in accordance with the window at the time of release.
• The Authority may inspect the goods to match them with the explanations contained in the statement and may inspect all or part of the goods or not inspect them.
• In the event of a dispute between the Authority and the person concerned, the text did not specify the mechanism for selecting the chairman of the arbitration committee, and we have previously suggested that this be by agreement between the arbitrators of the person concerned and the Authority.
• With regard to the penalty for smuggling, there is a double fine and penalty, a conflict in the periods of imprisonment and the restriction of freedoms.
• What is collected from fines and compensation shall be in favor of the Authority, and the goods - the object of the crime - and the means of transport, tools and materials used in smuggling shall ensure the payment of fines and compensation in the event of the occurrence of the crime from its owner or representative, and it would have been better that the collection of fines be for the benefit of the State Treasury until it is deliberately done with those dealing with the Authority to increase the proceeds of the its income to be disbursed as rewards to its employees. 

Recommendations Related to the New Law:

• The law must clearly define what is meant by a container.
• It is not permissible to enter the premises of shipping companies without prior judicial authorization because this article gives customs officers unlimited powers.
• Reduce the period of commitment to papers and documents.
• Not Recalculating the taxes and fees due.
• Cancellation of special fees for single window services, as this fee contradicts with the Investment Law, which stipulates that no administrative authority may issue general regulatory decisions that add financial or procedural burdens related to the establishment or operation of projects subject to the provisions of this law, or impose fees or fees for services on them or amend them, except after taking the opinion of the Authority's Board of Directors and the approval of the Council of Ministers.
• Determining the customs rate on machinery and equipment.
• The legal text should specify the mechanism for selecting the arbitration committee in the event of a dispute.
• Elimination of double fines and penalties.

• Customs clearance is a very lengthy and redundant process in Egypt. Whereas customs processing time does not exceed two days in neighboring countries, such as Turkey and the United Arab Emirates, it ranges from two to five weeks in Egypt.

According to the World Bank Group's Doing Business 2018 Report:

• The customs clearance process for exports in Egypt consumes 136 hours at a cost of $100 per container, whereas it consumes 37 hours, 20 hours, and 33 hours, in Morocco, Turkey, and UAE respectively; in OECD countries, the processes consume about 2 hours at a cost of $35.4 per container.
• The release of imported shipments takes up to 505 hours at a cost of $1,554 per container in Egypt. In contrast, the cost per container reaches $344 in Morocco, and $126 and $961 in Turkey and UAE respectively. In OECD countries, the process takes about 3.5 hours at a cost of $25. 

• Set targets to reduce the customs clearance time for imports and exports by 2021, to be on par with developed countries: from 505 hours to 24 hours for imports and from 136 hours to 24 hours for exports; and eliminate financial penalties associated with delays.
• Introduce a customs risk management system and an import risk analysis scheme, under which source countries and goods are classified based on specific risks identified.
• The Ministry of Finance should sign a protocol agreement with the World Bank to develop the customs systems and facilitate cross-border trade in line with international best practices; this will increase the confidence of foreign investors in Egypt. 
• The issuance of a final release permit should suffice to lift any reservation that may be placed on the shipment. This can be achieved by consolidating the efforts of the General Organization for Export and Import Control (GOEIC) and the various ministries; the issued consolidated final release permit, approved by GOEIC, should allow the importer to take the shipment out of his warehouses, regardless of its geographical location. 

Delays in customs clearance result in many challenges, including:

• Disruption of production, undermining the ability of industrialists to meet deadlines and diminishing the efficiency of working capital. Ultimately businesses incur significant losses due to late delivery penalties that they have to payout. 
• Burdening businesses with excessive storage fees, as trucks wait long in ports awaiting loading.

Several factors contribute to customs clearance delays, including:

• The procedures for inspecting, appraising, reviewing, and examining cargoes are laborious and lengthy.  
• The opening and full inspection of export containers in the customs area, with no consideration given to putting into effect the whitelist, which includes exporters with a solid track record of fulfilling the customs requirements on time. 
• Prolonged cargo clearance processes in airports, particularly with the introduction of one-stop shops (the process can take up to 3 months), noting that fees can reach LE 1,300 per shipment.
• Fees for laboratory analysis fluctuate, even when the volume/quantity of the sample remains fixed.
• In some instances, the Customs Authority will stop doing business with some inspection companies without notifying importers. 
• Many spaces that are designated for cargo examination are located outside the customs area, which prolongs the time period for sample examination.
• The severe shortage of ultrasonic testing equipment, and the reliance on the manual examination and inspection, which entails opening the containers.
• The insufficient number of laboratories in customs points to carry out all kinds of analysis and testing.
• The continued reliance on traditional paper-based processes, rather than adopting digital communication methods for interacting with clients or other government entities. 
• The less than adequate digital interconnectivity across the various customs points, especially in remote areas, which results in delays in cargo release. 
• For cargoes that require a permit from the Ministry of Health, the Customs Law does not provide for a specific time frame for completing the sample inspection. In some instances, the inspection takes up to 25 days due to strikes by workers of the Central Laboratories (affiliated with the Ministry of Health) in the Port of Alexandria. As a result, samples are sent to Cairo for analysis, which leads to the accumulation of samples awaiting analysis, and thus delays in the clearance process.  
• Due to the poor coordination among the different competent entities, customs officials sometimes issue arbitrary decisions to halt the clearance of shipments, which disrupts work.  

The following examples illustrate the problem:

• The release of shipments containing materials used in the manufacturing of cosmetics came to a halt in border customs points until the payment of the health stamp tax (retroactivity, going back to 2015). This decision was based on a decree issued by the Ministry of Health; however, the said decree did not pertain to cosmetics, but rather pharmaceuticals, and had no legal basis.
• Customs officials suspended export shipments of tea bags for weeks, on account of an internal circular concerning tobacco, which had nothing to do with tea.
• An examination of frozen corn shipments intended for human consumption came to a stop in response to a letter from the commercial representation office in Spain, the country of origin; the letter noted injuries in the corn crop, however, without providing any scientific evidence.

• The Prime Minister issued Decree No. 20 of 2019 forming a ministerial committee to monitor the implementation of the single-window system. The system, which aims at facilitating trade and improve the investment climate, is implemented by the Ministry of Finance.
• The Minister of Finance issued Decree No. 74 of 2019, which stipulates that an Egyptian company, MTS Logistics, shall implement, manage and operate the national single-window system in accordance with the contract concluded with the Customs Authority. The implementation framework for the single-window system was released.
• The plan, including the timetable, for developing and implementing customs applications for the national single-window system for foreign trade was released.
• A study prepared by the Ministry of Planning and Administrative Reform on rationalizing imports and developing exports included the following two key recommendations:

1. Continue with the efforts to prevent smuggling at customs points and harshen the penalties against smugglers.
2. Accelerate electronic connectivity between the Customs Authority, GOEIC, and IDA to reduce the time and cost of transactions.

• The procedures for extending utilities to industrial establishments are cumbersome, lengthy, and costly.
• Industrial areas lack in services such as transport, health facilities, shops, and restaurants.
• Pricing of different energy products for industrial establishments does not follow any uniform standard; pricing schemes vary according to the nature of the industrial sector.
• The high price of natural gas has a negative impact on industrial competitiveness (particularly for steel factories); the domestic gas price reached $7/million British thermal unit compared to $3/million British thermal unit in the global market.

• Consider offering payment plans, including an installment scheme, to allow industrial enterprises to pay for utilities over time; the payment plan should be commensurate with the size of the enterprise. 
• Provide reliable and economical transportation to serve workers in industrial zones.
• Make available commercial properties in industrial zones that can be used by food and beverage providers, as well as rest and recreation areas.
• Provide emergency medical facilities in industrial areas.
• Adopt a standardized mechanism for pricing energy products used in factories in order to achieve greater transparency and fairness. Similar to the situation in most industrial nations, the mechanism should be based on a well-defined formula that takes into consideration global prices, including their upward and downward fluctuations. 
• Exercise flexibility when pricing natural gas, especially for factories with high natural gas consumption. Domestic prices should correspond to global prices, and at the same time safeguard the competitiveness of the local product.

• On March 17, 2020, the Prime Minister issued a number of decrees that support the industrial sector. The decrees entailed reducing the price of natural gas for industries to $4.5 /million British thermal unit, as well as lowering electricity prices for ultra-high, high-and medium-voltage industrial activities by LE 0.10, and placing a freeze on electricity prices for the next 3-5 years for other industrial uses.

• Law No. 5 of 2015, which prescribes preferential treatment for domestic products in government contracting, is not fully enforced by many government agencies, as well as economic bodies and public sector companies. Thus, its effects remain unfelt.  

• Issue directives to all ministries and agencies obligating them to enforce the law, and at the same time, develop compliance monitoring mechanisms to ensure its enforcement. Efforts should be made to link the future needs of national projects with local industries to replace imports.
• Refer violations for prosecution; more so, the Minister of Trade and Industry should delegate authority to the Technical Secretariat of the Local Product Preference Committee, which is constituted via a ministerial decree, in accordance with the provisions of the law, and is located at FEI.
• Revisit the domestic preference percentage (currently 15%) prescribed in Law No. 5 of 2015. The law should be binding on all ministries, government agencies, national projects, and all government contractors from the private sector.

• In October 2018, the President ratified Law No. 182 of 2018 that regulates the contracts and agreements that are concluded by the public authorities in Egypt.  

The following are highlights of the new law:

• It includes a number of provisions of Law No.5 of 2015.
• It obligates all governmental entities and public sector companies to post all their public procurement opportunities, in detail, on the Public Contracts Portal; upon completion of the procurement process, the final decision, with specified details, should also be posted on the portal. 
• It obligates all parties to use the standard tender document, which is currently being developed and will be posted on the Public Contracts Portal. In the event that an entity decides not to use the standard document, it must provide an explanation as to why it chose not to comply with the requirement. This requirement will significantly reduce noncompliance with the preferential treatment for domestic products requirement. The requirement was being circumvented by including in the tender documents language that discriminated against domestic products and eventually resulted in their exclusion from the procurement process. 

• It was agreed with IDA’s former leaders to establish a comprehensive electronic system through which local product preference certifications would be issued to those interested in participating in government tendering processes; certification holders are to be accorded priority if their bids do not exceed the lowest foreign bid by more than 15%. Additionally, interested companies would also use the system to obtain the local component certificate required for receiving the export subsidy that the government offers as an incentive, based on meeting agreed upon terms and conditions. To date, this agreement has not been implemented.

• IDA, FEI, and Fawry should enter into a tripartite agreement with the objective of completing the component of the system that would allow businesses to obtain the service immediately upon paying the associated cost, either through the website or through the collection points located across Egypt; this way, each party gets to fulfill its end of the agreement once the payment is made. This is also in line with the Ministry of Finance's directives regarding the adoption of electronic payment procedures to facilitate the provision of services and encourage the private sector to move towards a cashless society. 
• Ensure that the database uploaded on the site is backed up on the FEI’s servers to ensure data preservation; regularly update the system and adopt robust data security measures.

• IDA has completed its share of work, including setting the procedures regarding the electronic system and contracting with the entity that will be hosting the server (due to technical issues, it was not possible to use IDA’s existing system). When fully implemented, electronic payments will be made through the nation-wide collection points used by e-finance (an Egyptian Fintech company); businesses to obtain the service immediately upon paying the associated cost, either through the website or through the collection points located across Egypt; this way, each party gets to fulfill its end of the agreement once the payment is made. This is also in line with the Ministry of Finance's directives regarding the adoption of electronic payment procedures to facilitate the provision of services and encourage the private sector to move towards a cashless society. 

• To date, neither the Prime Minister nor the Board of Directors of the Export Development Fund (EDF) has officially issued any decision regarding the mechanisms for implementing the proposed new system for supporting Egyptian exports.
• One of the challenges that hinder exporters from fulfilling the documents required for receiving export subsidies in a timely manner is the requirement that they must provide an export certificate issued by the Customs Authority, which takes up to a year. FEI has already called for revisiting this requirement. 
   

• Amend the rules so that the percentage of export subsidy is not less than 40%, in line with the definition of Egyptian (domestic) products contained in Law No. 5 of 2015—products satisfying the proportion of domestic industrial components.  
• Review and amend all sectoral programs that benefit from the export subsidy program (each sectoral program specifies the percentage of export subsidy it is entitled to); a number of these programs include many sectors with no requirement for a specific percentage of  domestic value added in exports to enjoy the export rebates, these include: leather, leather products, and footwear program; artifacts and handicrafts; spinning and weaving; home furnishings; ready-made garments; and garment accessories.
• Revisit the sectors that are already benefiting from export support; target those sectors that can actually contribute to achieving a quantum leap in industrial exports; thus, support should be directed to specific goods that are exported to specific countries, rather than adopting an undifferentiated, one-size-fits-all approach.
• Review and amend the percentages of domestic value addition included in other programs that provide export rebates for industries with domestic value added of less than 25%. These include programs covering the following industries: furniture, engineering industries, medical industries, pharmaceuticals and cosmetics, chemical industries, marble and granite, and insulating materials.
• Carryout out a thorough performance evaluation of the Egyptian Exports Subsidy Program (EESP), with a focus on assessing its impact on the rate of growth of industrial exports since its launch in 2001. The evaluation should also provide an analysis of each of the industrial sectors, identify the winners and losers, as well as to measure the impact of the support provided on the profitability and competitiveness of exported products. The results of the evaluation should serve as the basis for designing a forward-looking comprehensive strategy to develop Egyptian exports.  
• Carryout sectoral studies of the upstream industries relevant to each of the industrial sectors, including:

1. Identifying production gaps and prioritizing the imports which the upstream industries require. 
2. Examining the feasibility of substituting these inputs with locally produced inputs, taking into consideration local demand and competitiveness in global markets. 

• Consider the following fundamental underpinnings when designing the export support program: 

1. Improving the international competitiveness of Egyptian exports should be the priority; providing cash subsidies to exporters against the delivery of export invoices should be secondary. Price is not the only consideration that determines competitiveness, non-price factors, including product quality and the efficiency of the production process (the technical, human, and administrative components) are equally important.
2. Replacing imports with domestic production is no less important than exporting, especially that it contributes to the same strategic objective of reducing the trade deficit and providing hard currency.
3. Priority, in terms of land allocation and licensing, should be given to industries with high export potential or which are the least import-intensive. 
4. Export support and import substitution programs should be linked to a range of non-monetary incentives, such as facilitated access to land allocation, extending utilities to land plots, the provision of utilities, labor training, customs, and tax incentives, and the promotion of modern production techniques. 
5. Export support programs should give adequate attention to promoting industrial deepening and the effective targeting of support to reach the most deserving industries. 
6. The export support program should not be overextended, it should be treated as a phased program designed to activate the system of export development and address the imbalances that the earlier programs suffered from. It will not necessarily lead to increasing exports as desired. Increasing exports require undertaking an integrated approach to addressing the shortcomings in the investment environment in a holistic manner, closing all the gaps in the industrial sectors by focusing on industrial deepening, reducing imports, identifying specific high value added products and targeting them to increase exports to targeted countries. In other words, increasing exports requires undertaking a methodological effort that reaches all corners of the relevant state bodies. FEI is concerned that continuing with the export support program in its current configuration will not yield the intended results—significantly increasing exports, and ultimately, the responsibility for the failure will fall squarely on the shoulders of the program.

• The support provided to exports should be dynamically linked to the changes in the exchange rate. This is particularly important as the recent strengthening of the Egyptian pound against the US dollar, as well as the high inflation rates negatively affected the competitiveness of the domestic products.  
• Streamline procedures, and ensure that funds are released to exporters in a timely manner; failure to do this will render the program unsuccessful. 

• In July 2019, the Board of Directors of EDF announced the approval of a new LE 6 billion export rebate program for the fiscal year 2019-2020. This program entails allocating, 40% of the total budget, LE 2.4 billion, for cash payments to exporters, while another 30% of the program, LE 1.8 billion, will be deducted from liabilities that exporters owed to the Ministry of Finance. The remaining LE 1.8 billion, 30% of the program, will be used to boost the infrastructure and capacities of export operations.
• The implementation mechanisms of the program center on determining the value of rebates at the sectoral level and allocating a budget for each sector separately. The allocation of each sector will be revisited every 6 months, and reallocation of funds will be decided upon as needed. In this regard, the eligible sectors include the food industries; spinning and weaving, ready-made garments, home furnishings, and engineering industries; chemical and fertilizers; building materials, refractories and metallurgical industries; building and construction materials; agricultural crop; printing and packaging; medical industries; as well as leather, furniture; and artifacts and handicrafts.
• Exports not benefitting from the export rebate program will continue to benefit from the Shipping Africa Program, which will receive an allocation of LE 40 million. Additionally, under the continued the Air Cargo Program, LE 100 million will be allocated to EgyptAir to support the shipping of Egyptian exports. LE 100 million will also be allocated to the EDA in order to continue holding pooled fairs through a transitional phase until the end of 2019.
• The new program focuses on industrial deepening, aiming at increasing local manufacturing by a minimum of 40%, as well as encouraging exports of small and medium-sized enterprises by providing additional export rebates, over and above the already established rates: an additional 1% export rebate for medium-sized enterprise exports and an additional 2% export rebate for small enterprise exports respectively. 
• The program also provides additional incentives—export rebates—to companies to encourage export expansion. It grants large and medium-sized enterprises an additional 10-15% rebate for exports that show 20-30%+ growth, and small enterprises will receive an additional 20-30% rebate for exports that show 20-30%+ growth. Exporters located in free zones will receive 50% less export support than non-free zone exporters.
   

• The Export Councils, which are advisory bodies that are neither elected nor part of the executive branch, are still operating on the basis of the ministerial decree that was issued to regulate them; the decree is valid through the end of 2019. 

The Following are some key issues that need addressing:

• There is a fee for one of the required export rebate application forms; this is a flaw in the regulations.
• The settlement of overdue export rebate arrears owed to a number of companies for the period ending July 1, 2019, remains ambiguous. It was announced that the Ministry of Finance will offset these arrears with outstanding tax liabilities. It is not clear, however, how this issue will be resolved for companies with no outstanding tax liabilities for the prior years. 
• Does the export support program allocate a specific fixed amount of funds for each sector? In the case that the volume of exports in one particular sector necessitates the disbursement of funds that exceed the sector’s allocation, how will this situation be resolved?  
• Should Export Councils, which are advisory bodies that are neither elected nor part of the executive branch have the prerogative to decide who is entitled to receive export support? 
• The status of free-zone companies is ambiguous.
• How will export rebates be treated by the Tax Authority, and what mechanisms will be used to disburse the rebates?

• Application processing fees should only be imposed by law.
• Respond to the memo submitted by FEI and FECOC concerning the issue of export rebate allocations, and the extent to which they are commensurate with the actual volume of exports.  

The government’s response to the concerns raised by the Export Councils highlighted the following:

• Efforts will be made to create a legal framework for Export Councils by early 2020.
• Export support is not to be limited to member companies in the Export Councils. However, a number of Export Councils require membership to receive support, particularly with respect to health and safety approvals, and fulfillment of other relevant requirements.  
• The fee imposed on one of the required export rebate application forms is not prescribed by law; rather, it is imposed via an administrative decision made by the Export Councils. This issue will be addressed in the legal framework that will be developed.  
• Settling export rebate arrears will be subject to the new mechanism, which will be applied beginning July 1, 2019. Arrears for time periods before July 1, 2019, will be subject to the old mechanism. This will increase the burden on the EDF, especially that the rebate mechanism for these arrears has not been decided upon yet. EDF board discussed the settlement of arrears owed to companies for the period ending December 31, 2017. 
• Large businesses may receive full support with regard to shipping (this does not address cases where the amount due to the business exceeds the 30% prescribed for technical support).
• Five export councils are contributing LE 6 million towards automating EDF operations. 
• To settle overdue export rebates, the government will randomly select a number of companies with outstanding tax liabilities and offset it with the overdue export rebates; the government will explore mechanisms for settling overdue export rebates for companies with no outstanding tax liabilities. (FEI and FECOC responded to this proposal by highlighting that this will ultimately boil down to rewarding companies that are delinquent in meeting their tax obligations, and penalizing compliant companies that fulfill their obligations on time.)
• Specific amounts of funds are being separately allocated to each sector for export rebate purposes. These allocations will be reviewed periodically to determine their adequacy. (FEI and FECOC notes that this adds more ambiguity to the export support program implementation mechanisms.)

• The continued support and incentives offered to industries result in financial obligations that exceed the current budget of the ESF; this practice affects its capacity to satisfy its obligations towards factories and business owners.

• Set up a mechanism, whereby ESF’s debt owed to a business can be transformed into credit in favor of the business; the credit can then be used by the business to pay any dues or meet other delinquent obligations owed to the government.

• Imports of medical appliances (for the benefit of public hospitals and universities) are granted exemptions under Chapter 4 of the new Customs Law; this undermines the competitiveness of local industries as they do not enjoy the same exemptions, which range between 5-30%, on imports of production inputs; thus, both domestic and foreign investors are disincentivized from investing in these industries.

• Eliminate any preferential treatment given to imported products or grant domestic manufacturers the same advantages; develop an investment plan to encourage the production of needed products that are currently imported, including making available low-interest, medium and long-term loans.

• The formula used for determining the domestic content in vehicles is outdated. Currently, the percentage of each vehicle’s component— the standard percentage—is calculated, in an approximate manner, as an average of the commonly used percentage for each component. The standard percentages adopted are as follows: air conditioning system 9.54%, radiator 0.693%, radio cassette deck 2.53%, seats 5.397%, electric braids 3.205%, glass 1.48%, suspension system 4.4%, mufflers 1.08%, battery 0.468%, rims 0.9% steel - 2% aluminum, fuel tank 0.845%, carpets (floor lining) 0.813%, door binding 1.5%, tires 2.38%).  Thus, the total standard percentage for the most common components shared across many vehicles is 35.43%.  More so, the applicable percentage
• for calculating the contribution of the assembly line in the domestic content rate of a vehicle is 13%, and the applicable percentage for calculating the contribution of the local paint materials is 4% at most. Technological advancements in modern vehicles have pushed downwards the share of these components in the content of the vehicle. For example, the air conditioning system, which represented 9.540% of the content of old vehicles has decreased to 6% in modern vehicles.

• While the free trade agreements with Europe and other countries grant full customs duty exemptions for finished cars and their parts, yet, other duties and fees continue to be imposed, including VAT, development fees, and domestic licensing fees for auto parts and spare parts. More so, there are flaws in the existing taxation and customs systems.

Abolish the development fee, the local license fee, and VAT on components and spare parts, which are imported for the purpose of use in the automotive manufacturing process; address the flaws in the customs and taxation systems.  

• The problem of distressed and stalled factories; the Ministry of Trade and Industry should explore different options to support these factories so that they resume operations. 
• The problem of smuggling raw leather outside the country by circumventing the ministerial decrees regulating leather exports.  

• Strengthen control measuresat customs points, free zones, and transit areas.
• Criminalize smuggling and categorize it as a crime against honor.
• Confiscate seized goods, and enforce Article 15 of Law No. 118 of 1975 (Import and Export Law). 
• Halt exports of unfinished leather.
• Support promotion tours to boost the leather-based industries in international markets.

• The circumvention of regulations governing the export of scrap metal, especially copper, aluminum, and lead negatively adversely affects small industries that use these products. It is worth mentioning here that these practices are driven by the foreign exchange rates in the domestic market, as well as the metal prices in the metal exchanges outside Egypt

• Tighten controls at customs points, and use modern inspection devices to prevent exporters from circumventing the scrap metal export regulations.

• The precious articles and jewelry industry encounters a range of problems with the Customs Authority, the Taxation Authority, banks, and the Assay and Weights Authority. The current practice of calculating fees and dues as a percentage of the value of the product is not reasonable in the case of gold products, where the value is very high and the rate of profit rate (workmanship) is low.

• Restructure the Assay and Weights Authority and bring it back under the umbrella of the Ministry of Trade and Industry. The restructuring exercise should entail reformulating and improving the relationship between the Assay and Weights Authority and the gold manufacturers and traders to combat the rampant fraud prevailing in the market so that the industry can reclaim its credibility and foreign markets.  More so, the effort should include reviewing and reforming the customs regulations that limit the export of precious articles, and raw materials used in the production of jewelry, as well as addressing all bureaucratic obstacles that hinder the industry.

• Exporters do not have adequate liquidity to maintain operations and continue with production.

• Expedite the disbursement of the FY 2017/2018 export rebates owed to exporters. 

• Manufacturers are facing increased financial burden from the additional fees imposed on them, as well as the COVID-19 pandemic.

• Temporarily reduce fees associated with the following services:

1. New logistic services in the customs department.
2. Special roads toll rates on containers. 

• Activate the Emergency Fund of the Ministry of Manpower and Migration, which is partially financed through monthly contributions by factories (1% of the basic wage of workers), to pay the salaries of workers in the event that it was decreed that industrial establishment should shut down. 
• Exceptional Measure: Exempt all incoming shipments (that were already contracted for) from all the fees associated with customs clearance delays in Egyptian ports. 

• The complete shutdown of movie theaters during the COVID-19 crisis, as well as the numerous financial burdens placed on the industry (rent, salaries, maintenance costs, and taxes).

• The burden of increased costs associated with the high penalty fees that manufacturers pay due to lengthy customs clearance processes. 

• Offer a 3-month installment plan for paying the customs duties on raw materials.
• Adopt an exceptional measure, whereby port demurrage charges associated with delayed customs clearance are waived.

• Due to the COVID-19 crisis, workers in small workshops across governorates faced challenging wage issues; many of the small workshops employ a very large number of non-regular workers.

• Outdated machinery and equipment that are used in the different stages of the textile manufacturing process.

• To improve quality and increase production, extend assistance and incentives to factories that import new machinery and equipment for use in the different processes (spinning, weaving, dyeing, printing, and finishing). Grant textile factories a 50% tax exemption for 5 years, and ready-made garment factories a 25% tax exemption for 3 years. 
• Exempt existing factories that expand operations and new textiles factories from taxes for 10 years.

• The processing time for export rebates and VAT refunds is lengthy. 

• Expedite the processing of refunds and set a timeframe, not to exceed 90 days from the time all documents are submitted, for disbursing the funds; export assistance should be linked to the percentage of domestic value added in the given export, in accordance with the rules of Egyptian origin. 

• Governorates, local units and the General Authority for Roads & Bridges and Land Transport should not request donations or impose any additional fees on the production and transportation of minerals extracted from mines, quarries, and salterns, beyond what is mandated in the Mines and Quarries Law No. 198 of 2014 and Law 145 of 2019 and their executive regulations.

• Exempt buildings belonging to mines, quarries, and salterns from the real estate tax, in accordance with Article 18 bis of Law No. 23 of 2020. 

• The resources of the special funds isare re-directed to support other budget deficits rather than being employed to serve the actual cause of its establishmentestablishment.
• There is no proper legal and regulative framework for special funds in Egypt
• Special funds do not comply with accountability requirements and transparent budget preparation process
• There is no governance framework that identifies responsibility and independence of the boards as well as accountability measures and transparency
• There is an accumulative financial responsibilitiesaccumulative financial responsibility on many special funds that altered its scope and direction and overlapped with government responsibilitiesresponsibilities.

Policy Recommendations for Special Funds’ Policy Reforms: 

• Creating policy and technical tools to avoid establishing new special funds away from the state budget to ensure the efficiency of the state budget structure. 
• Amending the laws and regulations to ensure the ratification of financial bylaws as a requirement for the existence of any special funds. Additionally, the parliament should ensure any exceptional privilege for any special fund
• Modernization of the financial administration of special funds and listing specific KPIs to ensure accountable revenues and expenditure schemes with internal and external auditing process
• Ensuring transparency in all collected fees by special funds. The investor should know clearly in advance all the required money that he will pay.
• Ending all sorts of exceptions as no fund should be excluded from the state budget. 
• Reforming the state budget to be more flexible so there is no demand for special funds 
• The Ministry of Finance in cooperation with the General Authority for Organization and Administration should create comprehensive database with all workers and beneficiaries of all special funds in order to deal with any unfair grievances. 
• Putting KPIs for employment in special funds and either to freeze hiring new personal or limiting salary amounts in the budget to 20-25%

•  Issuance of General Circular of the Ministry of Finance No. 24 of 2021 regarding the collection of revenues and the rights of the State Treasury, which included "the administrative authorities do not disburse the amounts of money due to suppliers and contractors until after submitting a statement from the Insurance Fund to pay the insurance dues and a certificate of the tax position (the last tax return for general taxes - and value-added tax). 
•  As a result of this circular, no financial extracts due to suppliers or contractors were disbursed until a receipt for payment of 5% social insurance was submitted.

• In the case of disbursement of the dues of the supplier companies on which the tender is awarded, the items shall be supplied within ten days of receiving the supply order, but the disbursement of extracts shall be suspended by the finance representative until the contract is drafted. 

• In the case of supplying items that do not have a guarantee after supply, such as (stationery - carpentry - plumbing tools) it is not necessary to make a contract for them, or to make ready-made contracts with specific values for a specific amount from 1000 EGP to 50000 pounds whose use does not disrupt the disbursement of extracts, except (maintenance) or any devices that have a guarantee for which contracts are issued according to the concluded agreement.

• Government agencies face the problem of writing contracts for all operations, even for simple amounts such as 1000 EGP and above, which represents a burden on the supplier himself because his dues are delayed until the contract is completed, despite its supply and receipt from him due to the urgency of the entity to obtain its needs - which led to the reluctance of some suppliers to conclude any contracts and their refusal to deal.

• Not being obliged to write a contract up to a certain financial limit, which is proposed to be 50,000 pounds, and allows the entity to spend directly from its budget.

• Exclusion of companies due to the lack of some documents that must be attached to the technical offer during the opening of technical envelopes, noting that companies have documents such as (proof of subscription document in the public contracting portal - proof of the presence of a maintenance center - another tax return document - previous work - etc.)

• Giving a grace period of three days from the date of opening the envelopes, and in the event that the entity is not provided with these documents within the period, the company will be excluded before transferring the process to the decision committee.

• In the event of awarding a single bid, some members of the accounting unit do not comply with the application of Article 39 of Law No. 182 of 2018 by notifying the successful bidder of the payment of the insurance and after 7 days the supply order is issued to the company, which entails a delay fine thereafter.

• Commitment to implement in accordance with the provisions of Article 39 of the Tenders Law 182 of 2018 that the sole proprietorship is notified that it has been awarded and the attribution order is issued within two days only after the expiry of 7 days without making the supply order.