As of Thursday, May 11th, 2023, customs authorities began implementing the Egyptian cabinet's decision to exempt travelers who bring gold from abroad, from customs duties and other fees, except for value-added tax (VAT), for a period of six months.
During its meeting on Wednesday, May 10, the cabinet approved the draft law regarding the exemption of gold imports from customs duties. The decision was published in the Official Gazette on the same day, in issue number 18, saying it will come into effect starting from Thursday.
The decision to exempt gold imports from customs tax comes amidst a state of turbulence in gold prices in Egyptian markets, a decline in the purchasing power of the pound, and increased demand by Egyptians to purchase the precious metal to preserve savings
The text of the decision, presented in a single article, is as follows: "The following imports, which are declared upon entry at customs ports by passengers arriving from abroad, are exempted from customs duties and other fees, except for value-added tax (VAT), for a period of 6 months. The imports include:
— Semi-finished gold, gold intended for monetary and cash circulation, jewelry and its parts made from other precious metals, even if coated or covered with a layer of precious metals.
The exemption decision does not include natural or mixed pearls, precious or semi-precious gemstones, or composite or embellished parts on jewelry and its components.
The official decision comes following a state of anger among Egyptians working abroad, some of whom had their savings confiscated at Egyptian ports of entry. Many of them are known to save their money in the form of gold bars and jewelry. Media statements by El Shahat Ghatoury, the director of the Egyptian Customs Authority under the Ministry of Finance, were widely reported, stating that his employees rely on personal assessment of passengers' appearance to estimate the customs duties imposed on their gold possessions, at a time when many of them were repeatedly dealt with as smugglers.
The high demand for gold has caused its prices to reach record levels in Egypt, surpassing 3,000 pounds per gram for 24-carat gold, before dropping to 2,914 pounds per gram on May 11th, while the global price of gold is at $65 per gram for 24-carat gold
The decision comes amidst a state of turbulence in gold prices in the Egyptian markets, in response to increased demand by Egyptians to purchase the precious metal as a way to preserve savings and hedge against inflation, amid the continued decline in the purchasing power of the Egyptian pound and its potential for further decline.
According to the latest report by the World Gold Council issued in May, Egypt ranked fifth globally in terms of demand for gold bars and coins during the first quarter of 2023, following Turkey, China, Japan, and Iran, with a demand of 7 tons of gold, compared to 3.2 tons during the same period last year. The demand for bars and coins (the preferred means of savings) increased, while the demand for jewelry and accessories decreased.
The high demand for gold has caused prices of the precious metal to reach record levels in Egypt, surpassing the 3,000 Egyptian pounds ($96.9) per gram mark, for 24-carat gold (used in bars and gold coins), before dropping to 2,914 pounds per gram on Thursday, May 11th. Meanwhile, the global price of gold ranges between $65 and $68 per gram for 24-carat gold.
"Hoarding gold hinders the circulation of money in markets. But if hoarding is inevitable, it's better to occur inside Egypt rather than out, especially from Egyptians working abroad. Therefore, it's beneficial to reduce restrictions on this type of product"
As a quick response, the General Division of Gold and Jewelry at the General Federation of Chambers of Commerce issued a statement welcoming the Prime Minister's decision. Hani Milad, the head of the division, praised the government's response to the department's proposal, which aims to increase the supply of gold in the Egyptian markets to control prices. He pointed out that the decision will have a direct impact on achieving the desired balance between local and international prices. It will also provide the necessary raw materials to meet the increased demand, which doubled during the first three months of this year compared to the same period last year. Additionally, it will directly contribute to the return of remittances from Egyptians abroad in the form of gold jewelry or raw gold.
Before the Egyptian Cabinet's decision was issued, customs authorities allowed passengers arriving in Egypt to bring gifts or jewelry up to a value of only 10,000 Egyptian pounds. Any amount exceeding this limit would be subject to customs tax, and in the case of gold, a 10% fee would be imposed on the confiscated quantity along with a 14% value-added tax. However, if the gold jewelry is worn by a woman and the quantity is proportional to her social status, no customs fees would be imposed on her.
Just a few days ago, local websites circulated news about customs authorities at Cairo International Airport seizing a number of gold bars weighing two kilograms, concealed by passengers in various ways in an attempt to evade paying the required customs fees.
Gold within Egypt is better
Economist and finance professor Medhat Nafei believes that the Cabinet's decision to exempt gold imports from customs fees is a step in the right direction. He points out that treating gold as a prohibited item by customs authorities and their scrutiny of passengers carrying it was not a correct approach. Given the scarcity of the precious metal in the local markets and its significant price increase, it has become a safe haven for citizens seeking to protect their savings, as opposed to the banking system and its interest rates, which does not reflect the truth. The real interest rate is currently estimated to be negative due to high inflation rates.
According to the latest data from the Central Agency for Public Mobilization and Statistics (CAPMAS), the annual inflation rate for the entire republic reached 31.5% in April 2023, while the core inflation rate for the same month was 38.6%, according to data from the Central Bank of Egypt.
The real interest rate is calculated as the official interest rate minus the inflation rate (Real interest rate = Official interest rate — Inflation rate). In the recent meetings of the Monetary Policy Committee (MPC) at the Central Bank of Egypt (CBE) on March 30, 2023, it was decided to raise interest rates in banks by 200 basis points, or 2%, to reach 18.25% on deposit, and 19.25% on lending, with an overnight lending rate of 18.75%. Consequently, the real interest rate on deposits would be: (Real interest on deposit = Official interest rate — Inflation rate for the entire republic), or (18.25 - 31.5 = -13.25), resulting in a negative interest rate.
Nafei tells Raseef22 that hoarding gold is not healthy for the economy as it hinders the circulation of money in the markets. However, if hoarding is inevitable, it is better for it to occur within Egypt rather than outside the country, especially the money of Egyptians working abroad. Therefore, it would be beneficial to reduce restrictions on this type of product, allowing gold to enter Egypt to alleviate its scarcity.
Official at the Chamber of Commerce says the government's decision aims to encourage Egyptians abroad to bring gold into the country and sell it domestically, thus creating a flow, achieving stability, and aligning the local with the international price
A decision that solves the crisis, on one condition
Amr El Maghraby, a member of the board of directors of the Gold Division at the Chamber of Commerce, believes that the cabinet's decision to exempt gold imports from customs fees aims to achieve price stability. This is necessary because prices in Egypt have exceeded global prices, by increasing the supply of gold and thus helping narrow the gap between supply and demand.
Maghraby tells Raseef22 that gold prices fluctuate daily and rise by approximately 70 to 100 Egyptian pounds, and this significant rate of fluctuation reflects instability. He points out that the return of stability depends on the response of individuals coming from abroad and pumping quantities of gold that match the volume of demand, leading to a gradual decrease in its price and aligning it with the global price.
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