Flaws In International Trade Policy Prompt Export Incentive Scheme Revisit

In a bid to avert the impacts of fluctuations in international trade, Ethiopia has introduced a newly amended export incentive policy, overhauling incentive scheme provisions for value addition in export commodities.

The ‘Export Trade Duty Incentive Schemes Amendment Proclamation’ tabled to Parliament this week looks to replace legislation first ratified in 2012. The draft introduces a range of changes in the country’s export incentive landscape previously hoped to boost ailing export performance.

The government has been providing at least six types of tax-related incentives for exporters, including a refundable tax system, vouchers, bonded export factory and manufacturing warehouse systems, bonded input supply warehouse system, and industry cluster incentives. Under these, exporters have enjoyed the duty-free imports of inputs, tax holidays, and other incentive packages.

Most exporters rely on imported inputs, which they use to add value to commodities domestically before re-exporting them. The existing proclamation offers duty-free imports to encourage exporters. It, however, levies a 50 percent tax on inputs should an exporter fail to re-export the raw material supplies within one year of duty-free import.

“Beneficiaries of the export trade incentive schemes are unable to adequately produce and export their products due to the slowdown of the international market; although the proclamation provides that beneficiaries are required to utilize raw materials imported into the country through the schemes for production purposes and avail the products to the international market within one year or an additional one-year period permitted by the Customs Commission,” reads the preamble of the draft presented to lawmakers.

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It proposes to extend the period granted to exporters to ship out their products until the global or domestic problems that prevent them from doing so are solved.

The draft proposes to slash the tax penalty on un-exported commodities to 10 percent from the prevailing 50 percent.

Experts behind the draft also propose new rules regarding the import of defective raw materials.

Under the 2012 proclamation, exporters were obliged to pay a five percent tax on imported raw materials that are found to be defective or damaged. The draft looks to remove the penalty tax entirely, but stipulates that the defective materials must be shipped back to the country of origin.

“Raw materials or commodities imported free of duty under the export trade duty incentives scheme but are confirmed by the appropriate body to be not in conformity with the purchase order specification, damaged, in short delivery, or not fit for use in the production of commodities in market demand may be re-exported to their country of origin without payment of any duty. In other cases, the beneficiary can send the raw materials back to the country of origin by paying five percent of the unpaid duty. However, if the raw materials entered through the duty drawback system, 95 percent of the tax paid will be refunded based on the volume of the re-exported material or product,” reads the amended bill.

Lawmakers are expected to approve the new draft after incorporating their input.