The poor implementation process of Ethiopia’s duty-free incentives has given way to corruption and maladministration, according to a recent study by the Federal Ethics & Anti-Corruption Commission (FEACC).
It forwarded four main points it believes have hampered the incentives. One is that more duty-free goods than the limited amount were being imported. Another was that the privilege was being misused to import non-duty free items.
The sale of such imports without paying any duty on them and the transferring of privileged goods between businesses without using the proper channels was another finding by the Commission.
Close to a third of the 433 businesses the Commission sampled from Addis Abeba and Dire Dewa, said that the duty-free incentive administration was open to corruption while 56.6pc of them disagreed.
Funded by the Democratic Institutions Programme (DIP) of the United Nations Development Program (UNDP), and carried out by the Corruption Protection wing of the Commission, the study took a year. The 50,000-Br-project was made public on March 8, 2018.
Among the institutions that were found to be most susceptible to malpractice were the Ethiopian Investment Commission (EIC) and the Ministry of Mines, Petroleum & Natural Gas (MoMPNG). The absence of a clear mandate for the issuance of an exemption, which leads to a lack of proper allocation of accountability, was one of the reasons that worsened the issue, according to the Commission.
In EIC’s case, it was mainly alleged of licencing the importing of re-bar more than the allowed amount, a result of the lack of cross-checking. Over-invoicing was another headache mentioned for the tax enforcement organs, which is allegedly carried out by business as they do not worry about duties, but it helps them when depreciation costs are to be deducted from their gross income.
Recently, the National Bank of Ethiopia (NBE) had issued a directive where the minimum and maximum costs of imported goods have to be cross-checked with their global prices.
Highlighting the MoMPNG, the research states that an excessive number of permits for incentives, especially for vehicles, is given. Another allegation at the Ministry’s feet is that the first three months of duty-free exemptions for consumption type items for mining companies are stretched for years.
Over a third of the businesses that participated in the research said that they doubt any follow-up is done on the incentive. Close to three-quarters of the sampled group said that they do not believe that any actions are taken on those that violate the law.
Amongst the Commission’s reports, that were listed as severe negligence by the government institutions, was that the users’ files could be accessed by almost anyone including the exempted importers themselves.
“The output matches our expectation of the failure of the privilege to meet its goals,” said Abebe Yiheyis, head of the four-member team that carried out the research.
Last year, the Ministry of Finance & Economic Cooperation (MoFEC), together with the World Bank (WB), also began a study on the administration tax holidays and other exemptions in the country.
“We are finalising a survey on the tax exemption process,” said Ataklti Wldeabzgi, a senior tax policy expert at MoFEC. “The findings of the research may lead to a change in policy or some tax laws related to exemptions, which are going to solve the implementation problems raised.”
Yohaness W.Gabriel, a tax and commercial law expert, finds such developments as merely cases of the government giving in to international pressure by institutions such as the International Monetary Fund (IMF) and the WB.
“It would have been much more fruitful had experts at the Authority participated in the study,” he said. “They are very much aware of the problem on the ground.”
Ethiopia’s tax revenue is lower compared to that of other lower-income countries, standing at 11.8pc of gross domestic product (GDP) last year. This is in the face of over 34 billion Br given in duty exemptions by the first half of the current fiscal year, accounting for 37pc of the tax that was collected in the same period.
“The duty exemptions are due for revision,” the Commission’s report stated.
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