Imports and taxes in Ethiopia
Unless exempted by law, items imported into Ethiopia are subject to a number of taxes. Government levies five kinds of taxes on import items. These taxes are assigned priority levels and are calculated in a sequential order. These taxes, in their sequential order, are customs duty, excise tax, VAT, surtax and withholding tax. Taxes on imported goods are collected by the Ethiopian Revenues and Customs Authority (ERCA). These taxes provide considerable revenue to the government. According to the report issued July 2009 by Planning Directorate of ERCA, these taxes provided revenue of 11.8 billion Birr. Divided into six subheadings, the main purpose of this article is thus to raise awareness among the business community of the different kinds of taxes levied on import items. 1, Customs Duty and its Rates The first of the five taxes levied on import items is customs duty. The term customs duty denotes taxes imposed on goods entering or leaving the country. ERCA collects customs duty only on import items as no tax on export is levied. The government waived taxes on export items on purpose- just to encourage export. However, there is a 150 percent export tax particularly on certain hides and skins of animals. Customs duty provides significant revenue to the government, for example, in the fiscal year that ended on June 30, 2009, ERCA collected revenue of 3.9 billion Birr from customs duty alone which accounted for 32.4 percent of the total receipts from import taxes. ERCA collects Customs duty based on the rules stipulated in the customs proclamation No. 622/2009 and other regulation and directives. Customs duty has 6 bands or groups of rates which are applied to imported goods. These bands of rates are 0%, 5%, 10% 20%, 30% and 35%. From these band of rates one can see that the minimum customs duty rate is 0(zero) while the maximum is 35 percent of the CIF(Cost + Insurance + Freight) value of an imported item. According to the Customs Tariff (Amendment volume 1, 1996 edition), the maximum customs duty rate used to be 60 % of the CIF value of an imported item. However, since then the government has taken steps towards reducing customs duty rate in order to support inward investment and the broad business community. Such steps were taken in 2000 and 2002 where the maximum customs duty rate was reduced to 40 and then 35 percent of the CIF. The long run government's aim is to reduce this figure to near zero (0).
To calculate the customs duty, the CIF is multiplied by tariff rate applicable to each imported item. ERCA collects customs duty on a great variety of goods which can be classified into two categories. The classification is based on the primary purpose of the imported goods. Those import items used for productive purpose, items to be re-exported and for public use are classified in category one while import items for all other (nonproductive) purpose are classified in category two. Category 1 Accordingly