US embassy cable - 05CAIRO3146

UNCLAS CAIRO 003146 
 
SIPDIS 
 
STATE FOR NEA/ELA, NEA/RA, AND EB/IFD 
USTR FOR SAUMS 
TREASURY FOR MILLS/NUGENT/PETERS 
USAID FOR ANE/MEA MCCLOUD 
COMMERCE FOR 4520/ITA/MAC/ANESA/TALAAT 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, EG, Tax 
SUBJECT: GOE RESOLVES SOFT DRINK SALES TAX ISSUE 
 
1.  (U) On March 31, 2005 the GOE official gazette published 
Law No. 9 of 2005, which amends Sales Tax Law No. 11 of 1991. 
 The amendment, effective April 1, removes soft drinks and 
non-alcoholic beer from Table A of the sales tax schedule, 
the "luxury goods" table.  Luxury goods on Table A are 
subject to 50 percent tax on items less than 250 cubic cm in 
size and 60 percent on items over 250 cubic cm.  The 
amendment moves soft drinks and non-alcoholic beer to another 
table.  Items on this table are subject to a single tax rate 
of 25 percent on finished products, regardless of size. 
Producers manufacturing items on this table are also able to 
deduct from the 25% tax paid on finished products all of the 
tax paid on capital goods and inputs into the production 
process. 
 
2.  (SBU) Magdy Radwan, Tax Manager for Pepsico, told post on 
April 27 that moving soft drinks off of Table A addresses 
most of the concerns of soft drink manufacturers.  With the 
deduction noted above, this amendment moves the effective 
sales tax rate on soft drinks in Egypt closer to the 
international norm of 10 percent.  Radwan stated that soft 
drink manufacturers have also negotiated an agreement with 
the GOE tax authority to allow companies to retain some of 
the tax breaks they enjoyed prior to passage of the 
amendment.  Specifically, companies will be able to maintain 
the 22 percent deduction for distribution costs which the 
Ministry of Finance had authorized for the last several years 
to offset the high tax rate paid by soft drink producers. 
Companies will also be able to pay the three phases of the 
sales tax (production, wholesale and retail) in one payment. 
Radwan said that he planned to accompany the Chairman and CFO 
of Pepsico to meet with the Minister of Finance on April 28 
to sign the agreement. 
 
3.  (U)  Comment:  If Rawdan's analysis is correct, passage 
of Sales Tax Law No. 9 has resolved the sales tax issue on 
which the GOE has stalled for so long.  Post is translating 
the text of the amendment, which addresses a number of other 
issues in Egypt's complicated sales tax system.  Post will 
provide additional assessment after translating and 
conferring with Radwan's counterparts at Coca-Cola.  End 
Comment. 
 
 
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GRAY