Prime Minister Abiy Ahmed held discussion with his cabinet on Saturday August 1 to decide the education calendar. The discussion stipulates to take massive COVID 19 samplings and tests in the next two weeks all over the country and to decide after 15 days based on the result of the test. During the discussion Ministers of Health and Education presented their report.
Over invoicing affecting local manufacturers
Local investors are claiming that over invoicing, which is not seen as a priority by the tax authority, is pressuring their activity. Sector experts accepted and said that the claim needs cooperation between revenue office, Customs Commission and financial institutions for a solution.
Investors who came up with their claim told Capital that the investment sector particularly foreign investors are engaged in over invoicing for their imports.
According to these investors, who demanded anonymity, the problem is mainly observed in capital goods and raw material imports that have a customs duty from zero to five percent.
Foreign investors are using this illegal act for different purposes, according to local investors, who are affected highly because of the illegal activity.
Initially in their capital goods import, foreign investors come up with exaggerated cost to get gaps at profit tax, dividend tax and misinform financial firms, according to experts.
“There are two revenue collection bodies, customs and revenue collection offices, who are not sharing information properly regarding this issue,” according one customs expert.
Fekadu Bekele, advisor of the Minister at Ministry of Revenue (MoR), shared the idea. He said that initially the over or under invoice is deliberately done to evade tax and to access huge amount of finance from banks.
“The customs is focusing only on under invoicing because the priority for it is the revenue collection. Due to that the two bodies are going separately and become unable to look the overall economic and revenue impacts for the country that occurred in relation with over invoicing,” he said.
“The two bodies should use each other’s information,” he added.
It is an actual problem that has been stated in different studies, according to experts.
The tax office and customs should look together the information and identify the over or under invoicing clearly to solve the problem and keep the benefit of the country first, they said.
There are post clearance audit by the Customs Commission, which is under MoR, and desk audit by tax office, the two bodies should exchange their information to get clear image and tackle tax evasion.
If the tax office get the information that the import of capital goods is over invoiced it will get a way to get the proper tax and revenue.
The customs have huge database that can easily identify whether the imported goods are over or under invoiced that will help to collect proper tax and duty, according to experts.
“The customs may focus on revenue earnings due to that it may not be concerned when high price or over invoicing come, but it will identify the over and under invoice that can be used by the domestic tax office,” they explained.
“The customs collection information is crucial for tax collection and vice versa due to that they have to give attention for it,” private company tax experts said.
They said that due to the revenue office is not sharing the information with Customs Commission and only give attention for maximizing the tax collection, local investors have become a victim.
“For the same capital goods foreign investors provide highly exaggerated invoice but meanwhile we come up with proper invoice that will not sound correct for the tax authority, that only give focus only on under invoice and will argue that our invoice is under the real price,” they said. “It has affected local investors, who are afraid the tax office might demand exaggerated taxes when it comes to desk audit,” they added.
But if the tax office and customs share their information frequently the problem will be solved and even the tax office can get proper revenue from those who come up with over invoiced documents, according to experts.
“Both offices are looking the situation under their sector interest and that should be changed,” Fekadu, who is an expert in the over and under invoicing at MoR, said.
Experts said that over invoiced capital goods that are mainly included under duty free scheme may not directly pay the customs duty, but when they started paying taxes after the holiday the depreciation is very high that is directly related with inflated costs, which narrowed the profit margin.
“When the profit margin narrowed, these companies may not pay tax or sometimes declare losses,” Fekadu said.
According to experts the implication is not only limited for government revenue but it is also related with banks. Banks are giving loans based on the invoice of capital goods that are over invoiced from the real value. In actual terms banks are approving high amount of money as a loan for the capital goods, which have small real value.
“It may affect the banking industry if the businesses are closed because the actual price of the collateral is very small,” experts said.
“We have seen investors come with old machines but accessed huge amount of money from banks that is not of real value with their assets, but they get the money only because they appear with over invoiced capital goods,” Daniel Getnet, Head of Dabe Investment Consulting and Conveyance PLC, a legal consultancy firm for businesses mainly for FDIs’, told Capital.
He said there are some companies who abuse the legal gaps in Ethiopia. “Mostly they are coming with phony documents for their capital goods and supply of raw material, to abuse the tax system and get false values for their investment,” Daniel said.
“On the other hand they are using two different suppliers one is their own, which is formed to issue over invoiced document, while they are buying the product from other suppliers,” he said how the illegal process is done.
He advised that the government should form a body that follows corporate standard responsibility to closely follow the foreign investment. “Meanwhile there are arguments regarding this, there are countries follow the prudency of foreign investments,” he said.
Experts also claimed that the dividend tax is also evaded since the profit is very limited because of artificially inflated costs.
On the other hand foreign investors are using the over invoicing for capital fleet than using the legal divided flow.
Experts said that officials change within short period at the ministry and that might be the reason to not to fully solve the gap.
Fekadu said that the case has been identified by the ministry and different research papers have been done. “We have given professional opinion about the issue for MoR, due to that anybody who has a concern that might be the chamber or sector associations, can come up with their claim to initiate the case,” Fekadu said.
ESLSE to start ferry service
Ethiopian Shipping and Logistics Services Enterprise (ESLSE), the only flag carrier in Africa, set a strategy to commence cabotage and passenger services.
The logistics giant and multimodal monopoly indicated that in its five year strategy it will include more services including adding new medium size vessels to help achieve its goal.
Roba Megersa, CEO of ESLSE, asserted that regarding potential, ESLSE is in a good position in Africa to commence cabotage service to serve coastal areas in the region. Cabotage is the transport of goods or passengers between two places in the same country by a transport operator from another country.
“To commence the operation second hand properties might be assigned,” he said.
The cabotage operation focuses within particular territory that might be in a single country ports or ports cross border. In this case it might be transport from Djibouti to ports in Eritrea or Kenya and others, according to the CEO.
The sea and inland fleet giant has targeted to boost its fleet mainly in the bulk operation. To attain the target ESLSE undertook detailed study to secure two more medium size vessels.
“The study was concluded and is approved by the board of directors to procure brand new vessels,” Roba told Capital.
“There are two options to acquire new vessels; the property that is already being built for others and the deal might be terminated is the first way, or in other way order from the scratch,” the CEO explained.
“If we get a chance for vessels that is under construction the time will be shorter to receive it, otherwise in the coming two years we will get the vessels based on the second alternative,” he added.
According to the plan, Roba said that the vessels will have a capacity of 63,000 dwt, while the multipurpose vessels that Ethiopia operates now have a capacity about 28,000 dwt.
“This size of vessels are known as ‘supramax bulk carrier’ that are highly preferred for bulk carrier in the industry,” he says adding “they are profitable and we can even lease them for others, but at the same time we know the business and have now grabbed the fertilizer, coal and wheat business, due to that these vessels are very crucial for our operation.”
According to the CEO, the new vessels will be different from the current properties. “The two vessels will focus for bulk carrier,” he asserted.
About a decade ago ESLSE bought nine vessels including two tankers that it received in different time frames. The nine vessels consume USD 234 million and the major share was covered by Export Import (EXIM) Bank of China. Roba said that most of the loan has been paid, “so far over USD 190 million have been paid and the balance will be paid shortly.”
“We settle the loan on biannual basis that is approximately USD 17 million for each,” he added. He said that the local portion of the loan has already been settled and the foreign exchange is at its final stage.
The CEO is confident that his enterprise will not face a challenge to finance the brand new vessels that will be purchased in the near future.
“Since we keep the payment schedule we showed our credit worthiness to our lenders,” he said.
“We have a liquid asset and due to that the finance and guarantee issue will not be a problem. Of course we will use foreign finance to buy the new vessels and not need other warrantee to access the finance,” he explained.
The two tankers, Hawassa and Bahir Dar, have about 42,000 dwt capacity and they are the first tankers for the operator.
ESLSE also target to commence passenger transport with ferries. In the region there is a potential to commence passenger services with ferries. The price will be competitive than air transport, according to the CEO. The ferries are bound to take passengers from East Africa to the Middle East. The scheme is also included in the five year strategy.
ESLSE established in the mid-1960s is the strongest vessel operators and is the only cross continent operator in the African continent.
“We have cargo agents at 327 ports in the world, which is very big,” the CEO descried the capacity of his enterprise, “we retain in the market does not mean we have a fleet but we are engaged in consolidation with agents.”
“We are using our network and buy other slots to transport cargos. Partly we are non vessel owning common carrier (NVOCC), which is an operator that may actually does not have vessel but operate in the business like DHL,” he explained.
The enterprise is also engaged on West African market chartered service. “Recently the enterprise has transported a project cargo from China to Senegal. The business is encouraging and we will continue to operate,” the CEO concluded.
CONSEQUENCES OF PHONY MONEY
Fiat money is a money system where the physical currency in circulation along with other forms of money used in various transactions (bank money, etc.) is not backed by anything material, i.e., not real. In previous eras, money was invariably backed by something like gold, silver or other commodities (salt, silk, etc.) If truth be told, the only thing fiat currency has going for it is its backing from organized violence, in this case, the states. In all history, the regime of fiat currency has always been short lived and almost always ended up in inflationary collapse! But, since politicos occupying the apex of government make all major decisions of the state, expecting responsible behavior, particularly in regards to money and its management, was never a tenable proposal, to say the least. As a result and just like those previous interspersed eras of fiat currencies, our prevailing world system is now awash with massive amount of phony money that is threatening to trigger severe dislocation of the world order!
Many an informed reader knows that the current global money regime was set up in 1944, in Bretton Woods, New Hampshire, USA. One of the major agreements reached between the countries was that gold would anchor the world’s money system. This was to be done via the US dollar. Thirty-five US dollar was to be convertible to an ounce of gold. Since all other currencies were pegged to the USD, it followed, all currencies were backed by gold, albeit indirectly. That was the basis for the stability of global money in the post WWII era. In 1971, the US was financially bleeding on the account of its entanglement in South East Asia. Vietnam, Laos, Cambodia and others became war theatres for decades. Consequently, it became clear that the US was not able to meet its responsibility of delivering gold when presented with its dollars by others. The last straw that broke the Bretton Wood Agreement came from France. The then President of France, Charles de Gaulle brought plenty of dollars and demanded the shining metal. Mr. Nixon, the US president at the time, unilaterally declared that the gold window was closed and henceforth the US currency was to be a free-floating currency that will not be backed by anything, period! Thereafter and by extension all global currencies became fiat! This was a Godsend to many financially stranded countries, as they can now print money with abandon. The inflationary consequences were not immediately visible, until the late 1970s and 1980s. The rest, as they say, is history!
Inflation was a rare phenomenon in the long history of the world economy. It was deflation that was the most prevalent in the olden times and economic crisis were invariably triggered by deflation, not inflation! We admit; this can be quite difficult to take in, particularly to those who are born recently and are innocent of economic history. We believe a little sober reflection can reveal why the deflation animal dominated the past. When money is pegged to something tangible with intrinsic value, printing of currencies cannot be done at whim. This in turn tends to restrict speculative economic activities. Money becomes rare and precious. Let’s look at consequences of fiat money as it plays on existing economic reality. For instance, if real money was efficiently employed, rather than phony money, only 20% of the current global workforce is needed to deliver today’s global output! That is why the current shutdown due to the declared pandemic that formally reduced global GDP by about 50%, has not had as disastrous an effect as many expected! The global speculative mania, which came into existence after 1971, managed to flood the world with copious and unnecessary ‘white elephants’. The destruction of the natural world, especially the ecosystem, along with the pauperization of the global working stiff or the sheeple (human mass) in general, is the root cause of the ongoing & impending worldwide insurrections. See Hulsmann’s article next column. From the numerous ghost cities and 90 million vacant apartments of China, to the giant unicorn corporations of the west (Tesla, et al.), to the zombie companies of the wretched countries, bent on replacing pristine nature with concrete junk, will run into serious troubles when the world is forced to reset its financial architecture, hence its very economic creeds!
There are indications to suggest ascending powers of the world system might not settle for a new economic order, if it is going to be based, yet again, on fiat currencies. To this end, Russia, China, Iran, India, Venezuela, Iraq and many other countries have started to hoard precious metals, mostly gold, in anticipation of the new world order to come. Understandably, what this lopsided financial regime did to many resource rich countries in the past is laughably ludicrous. For a change, resource rich countries would like to see an exchange mechanism that can genuinely respect the non-renewable nature of their resources. Commodity (gold, silver, oil, etc.,) backed currency is what is proposed by the likes of Putin for the coming new global economic order. China is feverishly working on a gold backed crypto currency to mitigate the negative effects of the current reserve currency, namely the USD. Put together, the immediate future of the world system promises to be quite rocky! On its part, empire doesn’t seem to be in a hurry to address the situation; instead, it is concocting other problems to divert the global sheeple’s attention. Such an approach might not work this time around! See the articles on page 34.
“The gold standard alone makes the determination of money’s purchasing power independent of the ambitions and machinations of governments, of dictators, of political parties, and of pressure groups. The gold standard alone is what the nineteenth-century freedom-loving leaders (who championed representative government, civil liberties, and prosperity for all) called ‘sound money’.” Ludwig von Mises. Good Day!
