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The Ethiopian Revenue and Customs Authority (ERCA) issued a new directive imposing an additional 12 percent levy on imported goods. ERCA denied imposing any new tax. According to a new regulation signed by Beker Shale, director general of ERCA, on January 23, 2014, that importers have to pay an additional 12 percent tax when they are importing goods into the country. The new rule is based on a previous customs proclamation known as 622/2009.
The new directive; ‘Imported Goods Customs Duty and Tax Value Price Tariff: No 94/2006’ requires importers to pay three duties during the process of importing goods into the country.
According to article 14 sub article 3 of the new directive: if imported goods do not have an original document and information about additional customs value and port handling fees, based on article 39 of the 2009 proclamation, customs and tax values will be included in the new tariff imposed on the directive.
According to the directive, when goods first enter Ethiopia, transportation costs declared on imported goods must pay an additional five percent on top of the customs tax they already pay.
The value of the tax they have to pay is determined based on FOB (free on board), which is a pricing term that includes the costs of the goods, all transportation, and insurance costs from the manufacturer to the port of departure and loading the vessel, as well as the expense of loading and unloading the vessel and safety precautions.
Based on that, 5 percent tax is calculated from the FOB price, and it is included in the customs and tax value, which becomes the new levy for import.
The other fee added in the new directive is the fee calculated for the cost of insurance. The directive indicated that based on the accepted FOB price importers have to pay 2 percent of the insurance cost for imported goods that are transported to the first entry of the Ethiopian territory located at Galaffi or Dewale.
All in all the new directive has imposed an additional 12 percent custom duty on imported goods on top of the usual duties.
According to the sector experts, even though the new directive is applied to both uni and multimodal transportation, it mainly affects uni-modal transporters.
Freight forwarders explained that most of the multimodal users deliver their port handling and transporting documents because they are available at the Ethiopian Shipping and Logistics Services Enterprise, the sole multimodal operator in the country.
“If the uni-modal users can deliver acceptable documents about their transport process, they are exempted from the new tax,” freight forwarders clarified.
“However currently most of the uni-modal importers do not have the proper paper that exempts them from the new tax, so most of these importers have to pay the stated additional 12 percent customs duty,” a freight forwarder told Capital.
This freight forwarder further told Capital that they have already started applying the new scheme. “We have already approached our customers, who have received their cargo during the past one month, and asked them to pay the back payment as of the date that the directive that was issued in January 23, 2014,” the freight forwarder explained.
The new directive does not apply to vehicles, according to experts.
Even though the rule was signed into law one month ago apparently most people did not really understand its impact until very recently when they started getting requests to pay the additional charges on their freight. Early this week ERCA officials and stakeholders met at the Addis Ababa Kaliti Customs Branch Office of ERCA (Comet) to talk about the issue.
Sources who participated in the discussion told Capital that people were concerned that the new directive based the fees on FOB instead of calculating the tax on CIF (a pricing term indicating the cost of goods, insurance, and freight in the quoted price. Duty is then calculated by adding all costs together), which currently applies to importing vehicles.
“People did not understand if the new rule applied to imported vehicles,” sources added.
According to sources, ERCA officials told the participants that vehicle importation will continue as usual and that the directive only applies to other goods.
“They told us that the directive will be revised to include vehicles” sources added.
Previously, importers paid a small amount of tax, while the current new customs duty will increase the customs cost. Sources said that currently traders are hoarding goods that were imported before the new directive, because they expect the price of goods to increase when the new rule came into effect.
The new directive has been a surprise for importers and import/export handling firms because they did not have any knowledge of it until late last week. Sources said that the issue was identified when importers and freight forwarders were asked by ERCA officers at Comet Branch on Friday February 21 to pay the stated new levy.
Sources said that there was confusion until ERCA officials met with stakeholders early this week to talk about the issue.
Fekadu Bekele, Director of Price and Tariff Directorate at ERCA, told Capital that the new directive is only amended as part of implementing the proclamation.
He said that the government has not imposed any new levy other than consolidating the directives that were issued in 2004. He said that the current directive is a consolation of the 2/96, 6/96and 10/96 directives issued about ten years ago.“We are always available to talk with stakeholders who said the authority has imposed additional fees in the new directive,” he said.
New depreciation rule favors old over new cars
ERCA has also amended a new law encouraging people to import used cars. ERCA said the directive is a decade old.
The directives issued ‘Imported Goods Customs Duty and Tax Value Price Tariff: directive number 94/2006’ created confusion in the public. Many expected the country to go through with a new policy encouraging the public to import new cars. This is because older vehicles cost a lot to maintain, are less fuel efficient, pollute more and don’t have new safety features. They also use more spare parts. According to the directive, part three, ‘used cars and goods price tariff’, article 17, depreciations have to be deducted from the ICF/FOB comparing with an identical/similar new cars or goods customs duty.
The directive that was issued on January 23 along with other rules stated that for the implementation of the new depreciation deduction, importers or agents have to deliver documents that explain the car or the goods are old or used along with other descriptions, and documents needed to rate the customs value.
The depreciation reduction for vehicles is from 10 to 30 percent from the production date up to three years FOB (Free on Board). If a car has only been in service one year then there is no depreciation. However, if it has been in service between one and two years then there is a 10% depreciation from the FOB price and a car that has been in service between two and three years will have a 20 percent depreciation from the FOB price.
Cars used over three years will depreciate by 30 percent. New imported cars have zero depreciation reduction from the FOB.
Experts in the sector said that they are confused about the directive that encourages older cars to be imported rather than new ones. “We were expecting the government to ratify new amendment encouraging people to import new vehicles,” experts said.
Getachew Mengiste, state minister of Transport, told Capital that the government’s stand in terms of encouraging the import of new vehicles has not been amended as a policy.
“Currently a new policy has been drafted by the ministry and we are now again reviewing the documents, which aims to discourage the importation of old vehicles and promote newer models, with the Ministry of Finance and Economic Development,” he explained.
He said that the directive may be the oldest one.
“I don’t think ERCA has amended a directive to encourage the importation of old cars, because they are also working with our committee to implement the policy that we are now developing,” the state minister told Capital.
ERCA has also argued, like other parts of the directive that importers complained about when they said the authority imposed an additional 12 percent levy for importation.
Fekadu Bekele, Director of Price and Tariff Directorate of ERCA, told Capital that the depreciation reduction rate has been mentioned in the 10 year old directive. He rejected the accusation that the authority is encouraging the import of used cars.
Capital learned that the price of used cars in the capital has gone down significantly but used vehicle dealers’ said that the price decrease is not related to the new directive.
They argued that the price decrement occurred because of a shrinking number of buyers. The directive has also reduced the depreciation for used imported goods. The directive stated that all used goods that had been in service for over one year would get a 30 percent reduction in depreciation from the FOB price.
“If the production date of cars and goods are over one year and they were not placed in service or they are new, they will not get a depreciation reduction,” the directive stated.
For over seven years the Ministry of Transport has stated that the government would issue a new law encouraging the import of new cars, but the regulation has not yet been ratified.
Old vehicles affect the country’s economy because the spending on spare parts is very high. Studies also indicate that they cause more traffic accidents and take more fuel. Importing vehicles to the country consumes a large amount of foreign currency.