Here it comes: TPLF warns agro-processing investors to increase exports, or return tax incentives

9 May

Posted by The Ethiopia Observatory (TEO)
by Andualem Sisay Gessesse, New Business Ethiopia
 

The Ethiopian government vows to force tax incentive beneficiary manufacturing companies return the tax incentives they enjoyed by promising the country to bring hard currency to the country through product export.

“We are going to make the companies return back the tax incentives they enjoyed by promising they will export their products,” said Solomon Tadele, Director General of Food, Beverage and Pharmaceutical Industry Development Institute. “The incentives provided for them are taken from the pocket of every Ethiopian and if they don’t export they have to return back all the incentives they have received,” he said.

He made the comment on Wednesday afternoon responding to the parliamentarians on the poor export performance of the companies his institution is established by the government to support.

Disappointment

The new move came after country’s disappointment by the continuous failure of agro-processing companies to meet their export promises. Ethiopia has been providing several incentives to companies engaged in manufacturing, which among others; include tax incentives such as importing capital goods and machineries and raw materials duty-free.

From the homemade Enjera – Ethiopia’s national dish- to coffee processors, fruits, spices, breweries and wineries,several dozens of companies have been enjoying government’s generous tax incentives to invest in agro-processing and other manufacturing industries.

Tax exemption

Some of these companies have got 70% loan of their total investment capital from state banks without collateral while all of them are have enjoyed 100% tax exempt for importing machineries, spare parts and raw materials, among others. In addition, the companies are also entitled to income tax deduction of 30% for three years and export tax exemption and other non-financial incentives.

Though the country was expecting $100 million from export of foods and drinks in 2015/16 fiscal year (July 8, 2015-July7, 2016), the companies have only generated around $34 million in nine months, according to the institute’s report to industry affairs standing committee of the parliament.

Before revision the first plan of Ethiopia at the ministry of industry was to generate $347 million in 2015/16.

Ethiopia’s total annual earnings from export has been declining over the past few years from the around $3 billion dollars while on the contrary the import of the country is shooting up reaching close to $13 billion.

Bottlenecks

In addition to those fully owned by Ethiopians, 173 foreign and joint-venture with local companies are registered to invest in crops
and cereals processing from May 1993- March 2015, according to the data from Ethiopian investment agency. In addition, 357 are registered to invest in meat processing and livestock while 23 are listed under fishery.

The recent report of tax authority of the country shows that because of the amount of money the country has provided as tax incentives in 2014/15 has reached around $3 billion, which is equivalent to the total annual export earnings of Ethiopia.

The companies complain about lack of international market for their products, shortages of input, packaging foreign currency as well as power cut, as some of the major bottlenecks for their failure to meet export targets. Meanwhile, the institute also argued that the companies’ focus in local market is also the main reason that denied hard currency to the country.
 

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