The Finance Ministry Issues Decisio

On 23 January 2018, the Ministry of Finance issued decision No. 34 of 2018 (the “Decision”)[1] determining the base value according to which the value added tax is to be calculated with respect to the sale of used cars in the local market, being the difference between the price of the car in its current condition and the price for which it was purchased.

Background

Since its passing in September 2016, the application of Value Added Tax Law No. 67 of 2016 (the “Law”) has highlighted several issues that caused controversy or required clarification. Of these was Article (10) of the Law, which lists the manner of calculating the base value for value added tax (“VAT”) for a number of different goods, services and situations. In this regard, Article (10) provides that the value to be taken as a base for calculating due VAT on a good that was bought new and then used in Egypt for no less than 2 years is 30% of the original sale price. There seemed to be some confusion over the application of this provision in practice, especially where dealers of used cars are concerned. Issues that arose included the manner of applying this rule to the used car market, and whether a car that was used for less than the specified two-year period was going to be treated in the same manner, as well as whether this provision applied to situations of total-loss and the sale of car wreckage. This is all while bearing in mind that the Law imposed a VAT rate of 14% plus special schedule tax rates (ranging between 10% and 30% depending on gas tank capacity) on car sales, without specifying different treatment for used cars. The issuance of the Executive Regulations of the Law in March 2017 helped clarify some of these issues. The Executive Regulations stated that in the application of Article (10) of the Law with respect to the sale of used goods, certain conditions must be met, including that the used good was purchased new by the registered taxpayer and that it is being sold after two years of use by that same registered taxpayer in Egypt. Furthermore, the Executive Regulations clarified that the provision did not apply to the sale of used goods in the local markets; used goods that are imported in that condition from abroad or from free zones; and waste/wreckage.

The Decision

The new Decision states that the value to be taken as a base for calculating the VAT for used cars at the time of resale in the local market is the difference between the price of the used car and the purchasing price. In this respect due tax will be applied to that difference in price in accordance with the schedule tax rates assigned for cars depending on gas tank capacity. The Decision further re-iterates that rebates and deductions under Article (22), including input tax deductions, will not apply to the resale of used cars. It is also worth noting that the Decision specifies that the aforementioned rule for calculating due VAT on used cars can only be applied if the registered taxpayer maintains regular accounting books and complies with supervision rules of the Egyptian Tax Authority. This seems to limit the scope of the Decision to companies that deal in used cars and maintain regular accounting books rather than the sale of used cars between individuals.   [1] Minister of Finance Decision No. 34/2018 determining the base value according to which the value added tax is to be calculated with respect to the sale of used cars in the local market, Egyptian Gazette, Issue No. 19 (cont.) (a), 23 January 2018.