The Egyptian government’s decision last week to impose a new customs duty on imported mobile phones sparked widespread controversy in economic and social circles, as many considered it an additional burden on consumers amid the rising cost of living. While the government says the decision comes as part of efforts to boost fiscal revenues, support local industry and stimulate investment, it was met with rejection by a large segment of citizens and economic experts, who believe that such a step could lead to a significant rise in phone prices, limiting citizens’ ability to acquire them. Opponents also point to the absence of sufficient local alternatives and their fear of negative effects on the market and the consumer.
On 1 January this year, the Ministry of Finance announced the imposition of fees of up to 38.5% of the value of an imported phone, with one phone for personal use exempted for every traveller arriving from abroad. In light of the decision, citizens are required to register their phones through the “Telephony” application within a grace period of three months to ensure they continue to operate inside the country. The ministry said the decision aims to boost revenues and protect local industry, but the decision was met with widespread criticism, and experts, citizens and traders who spoke to Zawia3 believe it will lead to a rise in phone prices and create a state of stagnation in the markets, and will also increase the financial burdens on citizens, especially in light of the difficult economic conditions.
Commenting on the decision, Elhamy El-Merghany, economic expert and Vice-President of the Socialist Popular Alliance Party, tells Zawia3 that although taxes have reached EGP 2 trillion, they represent only 11.8% of gross domestic product in 2024/2025 and 36.5% of resources, while 51.4% of resources are financed from domestic and external debt, which “is considered the biggest failure of the Egyptian tax system”. By comparison, the ratio of taxes to GDP reaches 24.5% in Italy, 17.5% in Jordan, 30.4% in Denmark and 22.1% in Morocco. Egypt is therefore drowning in debt to cover the resource gap.
He adds: “Consequently, the government is searching for any means of collection that could provide sufficient proceeds for the authorities. As for the biggest disaster in the tax system, it is its reliance on indirect taxes, which provide nearly half of tax proceeds, while taxes on incomes and companies are low compared with most countries in the world”, pointing out that taxes will not solve the dollar crisis, because what solves the dollar crisis is production, exports and tourism, as he put it.
For his part, Karim El-Omda, professor of economics, believes that the decision to impose customs duties on mobile phones falls within the framework of regulating economic and commercial activities within the state, explaining that any economic activity needs specific controls, and pointing out that the inflation crisis and the rise in the dollar exchange rate have pushed some to look for illegal ways to make a profit, including informal trade and the smuggling of mobile phones via travellers.
“El-Omda” tells us: “When smuggling is used commercially, it leads to the creation of a parallel market that competes with the official market, which harms the companies and authorised agents who operate legally and pay taxes. For example, some travellers buy several mobile phones, especially from Dubai, in order to resell them in the Egyptian market and make profits of up to EGP 10,000 per phone, which covers the costs of travel and perhaps yields additional profits.”
How does the decision affect the local market?
Prime Minister Mostafa Madbouly also weighed in on the crisis. He stressed during a press conference on Wednesday the importance of subjecting all mobile devices entering Egypt to the system of taxes and fees in force in the state, and explained that five international companies have opened factories to produce mobile phones inside Egypt, but they face a major challenge in the form of smuggling operations that lead to large quantities of devices entering by illegal means, which harms the local market.
“Madbouly” pointed out that many countries have taken steps similar to those taken by Cairo to regulate the market and encourage local industry, stressing that Egyptians residing abroad will not bear any additional fees. He explained that the decision mainly targets people who constantly buy mobile phones. He also stressed that devices purchased before the decision was applied will not face any problems, while devices imported in the future will be subject to the prescribed fees. For its part, the Ministry of Finance stressed that the customs duties on imported mobile phones have not changed, and that the aim of the decision is to regulate the market and curb smuggling, while providing a transitional period for citizens to register their devices without the need to refer to customs officials.
Sherif El-Kilany, Deputy Minister of Finance for Tax Policies, explains that 95% of mobile phone imports into Egypt enter through smuggling, while only 5% pay the prescribed customs duties, pointing out that this smuggling inflicts heavy losses on the state’s public treasury and also harms the local market. He indicated that the value of smuggled phones reaches about EGP 5 billion per month, equivalent to EGP 60 billion per year, and that the customs duties on imported phones amount to 38.5% of the device’s price, stressing that no new taxes have been imposed, with the exemption of only one phone for personal use for every traveller arriving in Egypt maintained, without the need to pay customs duty. He added that the ministry has launched an electronic application that enables those arriving in Egypt through ports and airports to register their personal phones easily as soon as they enter the country, without the imposition of any additional fees or customs duties. He also pointed out that phones not registered through the application will receive a text message demanding payment of the prescribed customs duties within a maximum period of 90 days, and in the event of non-payment, these phones will be disabled.
For his part, Elhamy El-Merghany stresses that imposing the new fees on imported mobile phones will negatively affect both the market and the Egyptian consumer, pointing out that the government pledged to provide an alternative local product, but this product has not yet appeared, and no one has been able to assess its capabilities and quality on the ground. El-Merghany added: “We hope to see a good local product capable of meeting the needs of the market, which would reduce our dependence on imports, and we hope that this approach will be extended to include all goods.”
He points out that these fees could lead to a wave of stagnation in the mobile phone market in the short term. He adds: “We will only be able to assess the real impact of the decision after at least three months have passed, as we can then compare the market’s performance during the first quarter of this year with the same period of previous years to find out the extent of growth or contraction resulting from this measure.”
Commenting on the decision, Mahmoud Ali, the owner of a phone shop in Cairo, says: “Since the new taxes began to be applied, we have noticed a clear decline in mobile phone sales. Customers have become more hesitant to buy new phones, and even those who own imported phones prefer not to activate them to avoid paying the taxes. The market is already suffering from stagnation because of the economic situation, and this decision has made matters worse. If things continue like this, we will be forced to close our shops because we will not be able to bear the losses.”
Sara Hassan (30 years old), a government employee from Giza Governorate, agrees with him, and says: “I am not against encouraging local industry; on the contrary, I see that the existence of a good Egyptian product would reduce our dependence on imports; but the problem is that these taxes are being imposed without us seeing the local alternative. The government pledged that there would be Egyptian mobile phones, but so far we hear nothing but promises without implementation, and until that happens, the citizen will be the only victim of these policies.”
Ibrahim Hammam, a trader from Sohag Governorate, says: “As a trader, this decision will completely destroy the market. How will I convince my customers to buy an imported phone with additional fees that increase its price insanely? Talk of supporting the local product is nice, but where is this product? The market depends almost entirely on imported devices, and this decision will create a state of stagnation in a vital sector that is already suffering from numerous problems.”
Karim El-Omda believes that the tax evasion practices pursued by some affect the local market and create pressure on hard currency, explaining: “The smuggling of mobile phones is not for personal use as some claim; rather, it is used commercially. There are people who travel and bring back four or five phones to sell them later. This activity needs to be regulated.”
He points out that the decision to impose customs duties is not new but was previously not enforced, saying: “There are many decisions and laws that are not enforced, and as soon as they are applied, citizens feel their impact, which provokes some complaints. It is natural for a certain group to object, especially those who benefit from this informal activity.”
He adds: “Despite this, the decision does not affect all citizens, as most smuggled phones, such as iPhones, target a certain class, and this group is able to bear the taxes and fees imposed. For example, more than one million phones have recently been unlocked at traders, nearly half of them iPhones, whose prices range between EGP 50,000 and EGP 110,000, and they are not among the needs of the ordinary citizen”, stressing that the decision highlights the urgent need to strengthen local industry in the field of electronics, saying: “Egypt needs a strong local industry to cover the demand for mobile phones and electronic devices, especially with more than 100 million citizens. We need to produce no fewer than 15 to 20 million devices annually. Currently, there are four or five factories operating in this field, with plans to add another four or five factories soon.”
“El-Omda” stresses that imposing taxes and customs duties on luxury goods, such as high-end phones, luxury cars and yachts, is an important step to support the economy. He says: “These goods target the wealthy class, and whoever has the ability to buy them can pay the taxes imposed on them. We need to impose high taxes on these goods to support the national economy and reduce pressure on the dollar.”
Anger
The decision sparked a sweeping wave of controversy on the Egyptian street and on social media platforms, as many citizens expressed their anger and rejection of these measures, while others circulated sarcastic comments on social media platforms inspired by the statements of the Egyptian Deputy Minister of Finance. A number of citizens criticised the high taxes imposed on their devices when activating them in Egypt after returning from abroad, and according to users on social media, these taxes sometimes reached more than EGP 40,000, equivalent to 38.5% of the phone’s price, as explained by the Deputy Minister of Finance for Tax Policies.
Fawzy El-Ashmawy wrote: “The Prime Minister justifies the decision to impose customs duties on mobile phones by the complaint of six mobile phone manufacturing factories in Egypt about the volume of smuggling. Perhaps the question directed to specialist friends is: what are the names of these factories, and what are the names and specifications of the mobile phones they produce? What is the production volume of these factories compared with the needs of the local market? Do mobile phone producing countries impose customs duties such as those decided upon here? And is imposing these customs duties and taxes the best way to protect and develop these factories?”
Likewise, Mohamed Abdel Sattar criticised the decision, saying: “The authorities have admitted that the bodies charged with preventing mobile phone smuggling were unable to control it and that smuggled devices reach 95% of the size of the market, which harms the interests of local industry, so the authorities decided to launch a system for governing the mobile phone market. I have some simple observations. First: the bodies and authorities charged with preventing smuggling have not been held accountable. Second: the traders dealing in smuggled devices have not been held accountable. Third: the authorities decided to demand taxes, customs duties and value added tax from citizens. Our wise government is still unable to provide any solutions and works only to drain the citizen.”
Shereen Zaki wrote on Facebook: “The government is busy imposing customs duties on smuggled mobile phones, at a time when it turns a blind eye to major issues such as the Zambia plane, which left loaded with millions of dollars, weapons and gold without inspection. All of this is unimportant; the most important thing is that the smuggled mobile phone is the country’s number one enemy. As for the smuggled gold, where is it? We do not know?”, while Omar El-Kady asked on his page: “Will the wave of customs duties and taxes on mobile phones fix the national economy? Of course not. You feel as if we are following in the footsteps of North Korea and the days of Abdel Nasser! What is provocative is that the Deputy Minister of Finance tells you: the decision is to encourage the local product. What local product?!”, wondering about the authorities’ intention in the future to impose specific brands based on their agreements with investors, in a kind of guardianship over the people, and he described local agents as thieves, given the exaggerated difference in prices between Egypt and abroad for the same product.
Why is the government expanding the imposition of taxes?
The expansion of the imposition of taxes is causing a state of discontent among citizens in general, especially in light of the deterioration of economic conditions and the rising cost of living. Government reports say that “tax revenue proceeds jumped during the first five months of the current fiscal year (2024-2025) by 38.4% to about EGP 714.3 billion, compared with about EGP 516.1 billion in the same period of the previous fiscal year (the fiscal year in Egypt begins on 1 July and ends at the end of June of the following year).
According to official data, the government aims to increase tax revenues during the 2024/2025 fiscal year by more than 30% to reach EGP 2.02 trillion, compared with an estimated EGP 1.5 trillion in the budget of the 2023/2024 fiscal year. The government will achieve this target by increasing the proceeds of taxes on income (from employment), that is, employees’ incomes, as well as taxes on individuals’ incomes (other than employment), that is, non-commercial professions and commercial and industrial activity. According to the data contained in the draft budget for the 2024/2025 fiscal year, the government aims to increase the proceeds of income tax on employees to EGP 170.7 billion from EGP 134.9 billion in the 2023/2024 fiscal year.
Economic expert Elhamy El-Merghany believes that the core flaw in tax policy and in the remedies for the economic crisis is that they rely on imposing indirect taxes, which eat into the incomes of the poorest income brackets, who make up as much as 35% of the population, whereas it would be possible to raise the top tax rates on incomes and impose taxes on wealth and stock market speculation and activate property taxes, all of which could provide real revenues; but unfortunately, the government takes the easy route of resorting to indirect taxes regardless of their repercussions on the markets.
Amid sudden decisions that citizens regard as escalatory, the Egyptian citizen remains caught between a rock and a hard place, as his economic situation deteriorates as a result of declining income and the accelerating fall of the Egyptian pound against foreign currencies, and the resulting rise in the prices of goods and services, at a time when the government does not cease taking decisions it considers necessary within the economic reform programme it has imposed since 2016, leaving the question: when will the authorities pay attention to Egyptians’ capacity to endure?
Editorial correction: The first version of the report stated that the government aims to raise tax revenues to EGP 2.02 trillion during the next fiscal year, compared with EGP 1.5 trillion in the current fiscal year. The correct position is that these targets, together with raising the proceeds of employees’ income tax to EGP 170.7 billion from EGP 134.9 billion, relate to the budget of the 2024/2025 fiscal year compared with the 2023/2024 fiscal year, according to the official data published in March 2024 to which the report refers.
