New Incentive Rates for Local Manufacturers

The Ministry of Finance & Economic Cooperation (MoFEC) is ranking manufacturers by value addition for duty free benefits based on a new directive expected to be approved this month.

This will happen by replacing the existing directive, No. 35/2013, which gave import privileges for only 30pc or more value addition. The new one will have a wide range from 0.05pc to 40pc

A committee established a year ago including members from the Ethiopian Revenues & Customs Authority (ERCA), the (MoFEC) and the Ministry of Industry (MoI) has been drafting the new directive.

This draft, unlike its predecessor, introduces a sector specific requirement that takes into consideration the human resource and technology capacity of each beneficiary.

Accordingly, the lowest value addition of 0.05pc is tagged for mobile phone assemblers while the 40pc is for breweries

The textile sector, which has been identified as a competitive edge for the country but which remains challenged, will enjoy benefits tagged to 21pc value addition. It also enjoys a two- to six-year income tax exemption.

“The committee takes into consideration the reality on the ground; the level of development of the sector and capacity of local manufacturers,” Birtukan Girma, port clearance audit director at ERCA told Fortune. “A study has confirmed that there are hardly any manufacturers that meet the 30pc value addition requirement so far,” she said.

Mobile phone assembly for example is in its infancy so the least requirement of 0.05 per cent value addition is all it takes for the assemblers to enjoy the incentive privileges.

Later this month, there will be an audit on some of the manufacturers identified as a risk by the Authority, to check on whether these companies have actually managed to add value and at what level.

Those who will be audited will be identified based on their history in terms of the quantity of their imports based on data from the Automated System for Customs Data (ASYCUDA), a computerized system designed by the United Nations Conference on Trade & Development (UNCTAD) for Customs administration. In this manner, the Authority will be able to regulate the quantities of imports and exports and determine their profiles in paying tax, starting from the year 2000.

Manufacturers will have to meet the criteria in the new directive to access benefits.

“The financial cost of incentives to the country and how many of the beneficiaries deserve the benefits they are getting will be determined after the directive is approved,” said Birtukan.


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