Directive Animates Informal Trade, Relegates Formal Market

Long queues, bags turned upside down in search of any taxable item, and other customs ordeals have become history at Bole International Airport. A new directive exempts items brought in for personal use from duties. But only a few rightly use this privilege. Loopholes in the Directive have given way to informal businesses shelving the formal electronics and clothing retailers, writes HAIMANOT ASHENAFI, FORTUNE STAFF WRITER.

For the busy businesswoman Lula Abdella, spending days in her shop in Yirga Haile Shopping Centre in the heart of Merkato, the largest open market in Addis Abeba, is quite boring these days.

Unlike other days, she has been idle at her boutique Lula Fashion serving only a few customers. For the past four years, she has run the business travelling to Turkey every other month to bring dresses, shoes and handbags.

Her latest trip was in mid-December, and to her surprise, there was a change at Bole International Airport. Her baggage did not go through checking, although on previous trips customs officials used to frisk check every bag.

“The law has been changed, there’s no duty on personal items,” another traveller told Lula.

A new directive by the Ministry of Finance & Economic Cooperation (MoFEC) and Ethiopian Revenues & Customs Authority (ERCA) was issued with the aim of reducing the inconveniences travellers face at customs checkpoints.

Besides alleviating inconveniences, the new system enables customs officials to pay extra attention in inspecting items that are not allowed to enter the country, according to the Authorities.

Applicable to returnees, diaspora, contracted workers, investors and other travellers, the Directive exempts items brought into the country for personal use from taxation. ERCA and MoFEC classified 355 items as personal use items. Earlier, these items could not enter the country untaxed, for personal use or not.

Lula was delighted with the changes, but her excitement was short-lived as she noticed the adverse effects of the Directive on her business.

Since then, the Airport has seen travellers carrying electronics especially 50-inch televisions and baggage brimming with clothes. The privilege has now shown its commercial side, and most travellers bring in items for more than “personal use”.

On the other hand, cabin crew members are excluded from the privilege as travel is characteristic of their occupation. Though they requested to be included, the authorities resisted to add them in the beneficiary list. But they can still use the privilege through the free tickets they get from their employer.

Ethiopian Airlines, an employer of 13,484 permanent workers, offers a minimum of four free tickets to an employee every year. The benefit will be raised to eight tickets when the employee has served for six years. Team leaders are entitled to unlimited tickets.

Officials, however, claim that much has been done to avoid the abuse of the exemption and prevent its commercial use. Yet, there is only much that can be done to stop it. Lula doubts the fate of her already jeopardised business, fearing its closure.

“We can’t expect people to stop by our shops when they get the products at a lower price from travellers,” she chimes in frustration. “Their prices are lower as they don’t have rental or tax expenses.”

To import the clothes, Lula pays duty as she ships a maximum of 400Kg in a trip through cargo. Out of last year’s total 73.3 billion Br customs revenue, 169 million Br was collected from clothing importers such as Lula. Most of the items were from China.

Adding her expenses to buy and ship the clothes into the country along with tax, rent and profit margin, she sells her products for a minimum of 650 Br.

Her price is much higher than the products sold by travellers who bring them for commercial purposes. Dresses, tops and shoes are sold from 250 Br up to 650 Br- floor price at Lula Fashion. The origin of the clothes determines the price.

While fully relieving clothing of duties, the new directive partially exempts mobile phones, laptops, televisions, hard and flash disks, and professional cameras depending on their quantity.

One TV regardless of its size, two hard disks, five flash disks, one laptop and a single desktop set can enter the country duty-free. As the number of these items increases, the due tax needs to be paid.

If a large number of items are brought in for personal use they are subjected to taxation under the new directive. Travellers would pay 83pc, 18pc, 133pc and 35pc of the prices of TVs, laptops, professional cameras and mobile phones, respectively, as a duty.

The new fees will be applicable after approval from Abraham Tekeste (PhD), minister of Finance & Economic Cooperation (MoFEC). Currently, the rate is slightly higher than the new one.

The new directive has stirred up excitement among travellers. Yet, there are those who are dismayed, particularly electronics product assemblers, importers and retailers.

Since the announcement of the personal effect directive, the price of electronic products in Merkato has shown a considerable decline. Laptop prices have dropped by 300 Br to 700 Br based on specifications, while the price of a 49” TV has declined by 3,000 Br to 5,000 Br.

Renowned distributors of branded electronic items such as Garad, distributor of Samsung electronics, Glorious Plc distributor of Sony and Hisense, and Metro Plc, LG’s distributor, are bearing the burnt of this new directive.

“We haven’t sold any large TVs,” said Nasri Abdulsemen, a Marketing director at Glorious, established in 1977 as a small scale electronics distributor, now owns six showrooms employing 300 staff members aside from the 50 dealers it partners with across the country.

Nasri also questions where the travellers get so much foreign currency to bring the items in.

“I presume they source it from the parallel market,” he told Fortune, stressing that they wait for six to eight months to open letter of credits (LC) at banks. “This has led to a huge price gap between the products.”

The damage is immeasurable to the extent that their dealer terminated the contract, in this case, their prominent electronics supplier.

“We lost our agents who used to buy products exclusively from us,” said an official from this company.

Another company disappointed with the new system is Selam Business Group Plc, one of the 15 local television assemblers. It has been in the business for the past seven years established with a capital of 20 million Br. It assembles Super Fine brand TVs from 19” to 65” screens.

Super Fine sells the locally assembled 55-inch television for 24,000 while 65-inch ones go for around 40,000 Br. Other prominent imported brands such as LG, Samsung and Sony have a price tag between 50,000 Br to 80,000 Br for 49” to 65” screens.

Surprisingly, 55” TVs brought by travellers to the country are sold for 30,000 Br maximum, about half of the retailers’ price tag.

“TVs with large screens have gone out of the market for us,” Yohannes Mahari, marketing head of Selam Business Group told Fortune, lamenting that, “With such competition, it is difficult to cope up.”

This effect is just a small part of the bigger picture, according to Yohannes Woldegebriel, a commercial law expert.

“It will affect the economy leading to the expansion in the parallel market to import the items,” said Yohannes. “Likewise, revenues from the tax will decline.”

Last year, the country earned 135.53 billion Br from tax, up from 84.2 billion Br five years ago. Yet, the country is struggling with a budget deficit which is expected to be supplemented by domestic sources such as tax revenues.

Customs officials have also observed the misuse of this exemption, especially on clothing and electronics products.

“We excluded cargo carriage from the privilege,” said Mulugeta Beyene, the deputy manager at Airport Customs Passengers Affairs of ERCA.

Another defect in the new system is the lack of a limit on the time or frequency of travel, notwithstanding the implementation gaps.

Wendwossen Degefa, a consultant at the Customs Department at ERCA, confirms that the Authority is already facing problems in implementation for lack of directives to address the limitations.

“We are doing extensive research to detect problems that held us from effectively implementing the directive,” Wendwossen told Fortune.

Bochu Sentayehu, director of legal services at MoFEC, confirms that things would not proceed this way hereafter, as they are working on adjustments in the directive such as limiting the size of TVs, among others.

“We will address the flaws of the directive as soon as possible,” concludes Bochu.


Published on Feb 05,2018 [ Vol 18 ,No 928]



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