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Export Trade Duty Free Incentive directive starts applying
The third Public Private Consultative Forum focussing on the new investment proclamation and export promotion directive was held at the Addis Abeba Hilton hotel on Tuesday February 5.
The Export Trade Duty Free Incentive Directive that aims to boost the manufacturing sector’s export to meet the Growth and Transformation Plan (GTP) started applying as of last Friday and was the major issue discussed on the forum.
The discussion that involved stakeholders from the private sector and relevant government officials from different bodies raised various problems noted in the sector, including taxes, customs duties, multimodal freight forwarding and financial concerns.
One of the key issues raised by the private sector is the challenges with regards to loan facility. “The government needs to stop the requirement of bond purchase to the amount of 27 percent of the loan extended to the export sector from banks,” participants proposed. “If the current bond purchase obligation remains, there will not be funds available for loan,” participants feared.
Ahmed Nur, advisor of the Minister of Industry (MoT), refuted the request, saying “The bond purchase scheme will not cease for any sector of the economy”.
Export Trade Duty Free Incentive Scheme
The directive for the new proclamation that revises the Export Trade Duty Free Incentive Scheme was postponed twice in the past two months.
The new proclamation which replaces a six year old law, and aims to boost export oriented businesses, was amended at the end of the last fiscal year at the parliament. And according to the government plan, the directive was expected to be applied as of November 10, 2012, but following a discussion with stakeholders held on November 2, 2012, the amendment was suspended.
According to an expert at the Ministry of Industry (MoI), the directive amendment was not immediately ratified due to stakeholders’ confusion that the ministry observed at this discussion.
The newly introduced Export Trade Duty Incentive schemes will not be limited to a duty draw back scheme (otherwise known as zero taxation incentive) but instead it will offer improved incentives.
Duty drawback is a scheme of a refund that can be obtained when an import fee has already been paid for a good, but the good is then subsequently exported. In order to obtain a duty drawback, a business does not have to have paid the import duty, nor do they have had to perform the product’s exportation, they only need to be assigned the drawback from those to whom it would typically be due.
According to the document, the bonded export factory scheme, manufacturing warehouse scheme, input supply warehouse scheme and industrial zone scheme are also included in the new proclamation.
Business operators interested in establishing a bonded warehouse of manufacturing type shall be exempted from the payment of import taxes and duties provided the goods imported and stored in such bonded warehouse are used in the process of producing, mixing or assembling and then exported, regardless of being exported in the same nature as imported or in the nature of having been produced, mixed, assembled as other goods.
Input supply Warehouse scheme is part of bonded warehouse scheme to allow international input producers to supply their product for local export oriented manufacturers with duty free scheme.
This proclamation has also revised the previous duty draw back scheme that was found to be slow. Exporters actually had to wait almost an entire year to exercise the duty draw back scheme whereby they collect back the duties they have paid. The new law will now allow exporters to receive their duty draw back within 30 days after a formal request.
The bonded export factory scheme is drawn from the experience of other countries that have been exercising it with the aim of expanding industrial export. This incentive will provide industries access to raw materials and other necessary inputs with less customs bureaucracy.
Meanwhile the bonded warehouse scheme that was applied for the leather sector in the last two years will now be applied to other industrial sectors based on the law.
Bonded warehouses provide specialized storage services such as deep freeze or bulk liquid storage, commodity processing, and coordination with transportation, and are an integral part of the global supply chain. It is managed by the supplier and customs authority at the same time.
The Ministry of Finance and Economic Development (MoFED), MoI and the Ethiopian Revenues and Customs Authority (ERCA) have contributed to the new directive.
To realize the ambitious five year development plan (GTP) the government is introducing several new measures in various sectors of the economy. The main aim of this legislation is to make products which can come from local or foreign sources, to be used in the process of export trading duty free as well as to make the export trade more efficient and successful. It will help in facilitating in the interlinking of local-based raw materials and products process, so as to create a new and modern regimen to encourage traders and companies to boost their exports.