Identifier
Created
Classification
Origin
05CAIRO3146
2005-04-27 16:26:00
UNCLASSIFIED
Embassy Cairo
Cable title:  

GOE RESOLVES SOFT DRINK SALES TAX ISSUE

Tags:  ECON ETRD EG 
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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
SUBJECT: GOE RESOLVES SOFT DRINK SALES TAX ISSUE

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
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