New excise tax rates will reduce minimum taxes from 10 percent to five while the highest tax will be a whopping 500 percent.
The revised excise tax that will replace proclamation no. 307/2002 taxes new items, but reduces the rates of many others, tax rates for imported vehicles will double. Beer was expected to have a higher rate but surprisingly went down.
The new law to be voted on at parliament this week was highly anticipated by the general public and the business community because many feared the revised tax would affect their business activity while others expected the drop to boost their operation.
The draft table is divided by 19 items with 24 pages of details of goods and services. It dropped the minimum tax rate to 5 percent from the current 10 percent and the maximum to five-fold from the current 100 percent to 500 percent.
With the new rates, excise taxes for plastic tires, telephone services like voice, data and tests, and electric powered motorcycles stands at five percent.
The last time excise taxes were set it was 2002 and the minimum rate was 10 percent.
For instance, the rate related to products in the textile sector and garment industry has declined by 2 percent from the current 10. Experts stated that the excise tax rate should consider international competition since the country wants to expand the textile and garment sector, which is expected to create jobs.
Similarly, the sweet industry expected to bring in hard currency when the new sugar factories open has seen a significant decrease in the excise tax. According to the revised documents the tax rate for sugar products has dropped to 20 percent from the current 33.
Currently the government is in the process of privatizing the sugar sector and some factories will be transferred by this budget year.
A week ago, Eyob Tekalgn, State Minister of Finance, indicated that the sugar excise tax rate will be rearranged to make the sector competitive in the international market. “Our target is to export the product at a competitive price and to do that the rate will be revised,” he explained.
The excise tax reduction is also expected to increase the interest of investors, according some experts. But at the same time others have argued that the excise tax on sugar is unacceptable. They claimed that sugar is basic commodity, a necessary food item.
Bitew Alemu, General Manager of Ethio Sugar Manufacturing Share Company, which is one of the companies competing to take at least one factory through the privatization process, argued that the 20 percent is calculated from sales. “Currently, the 33 percent is calculated from production which deducts depreciation and other costs before calculating the excise tax,” Bitew told Capital.
Similarly, some other industries like soft drink and water bottlers have also complained about the tax revision that reduced soft drinks and non-alcohol beer to 25 percent from 30 percent and 15 percent for water bottlers, while the real tax settlement will increase.
According to experts the new excise tax calculation is based on sales instead of production.
The other unexpected revised rate is on beer.
In the current status the beer excise tax is 50 percent but that will be dropped to 40 percent or 11 birr per a liter in the revised document, and even the product is produced by the malt fully produced in the country the rate will be shrunk to 35 percent or 9 birr per a liter. The proclamation has also added that the beer that produced by 75 percent of its wait from local inputs except water the tax will stand at 30 percent or 8 birr.
Experts in the beer industry said that the revised rate is unexpected compared with the expectation. Previously, rumors said the beer excise tax would rise three fold from the current rate and brewers were upset. However the rate has reduced from 30 to 40 percent even though the current calculation would be calculated on sales, and that means the price beer may still go up a little.
The other alcoholic drink currently is 100 percent has been reduced to 80 percent. The excise tax rate for whisky has also increased to 80 percent from the current 50 percent.
All types of pure alcohol excise tax rate have dropped to 60 percent from the current 75 percent.
The cigarettes excise tax rate has revised to 30 percent plus five birr per packet that holds 20 cigarettes, while on the current rate the excise for cigarettes is 75 percent with cigar, cigarillos, pipe tobacco, snuff and other tobacco products.
On the revised rate other type of tobacco products except tobacco leaf and cigarettes that excise rate is 30 percent with 250 birr per kg.
The tax for television and video cameras, television broadcast receivers whether or not combined with gramophone, radio or sound receivers and reproducers will have a similar ten percent rate that is now mostly 40 percent and 10 percent for television broadcast receivers whether or not combined with gramophone, radio or sound receivers and reproducers.
The tax on salt has also reduced to 25 percent from the current 30 percent.
The revised rate on vehicles totally changed and appreciated the brand new and locally assembled products than used vehicles. The rate indicted that the three wheel vehicles that locally assembled or brand new would have 30 percent excise tax, otherwise based on their service year in other countries the tax rate is from 80 to 430 percent.
The vehicles from 1,000 cc 1,300 cc are also the same with the three wheel cars and the rate for used cars is from 110 to 460 percent based on their service year. The rate is similar with the current rate on1,300 cc cars for brand new or locally assembled cars except adding rates on the used vehicles.
For cars with 1,301 c.c up to 1,800 c.c the existed rates, 60 percent, while the rate on the used vehicles is similar with for up to 1,300 cc rates that is 110, 160, 260 and 460 percents for cars the used for two years, up to 4 year, up to 7 years and above 7 year respectively.
For vehicles above 1,800 cc the rate is similar with the past 100 percent for brand new locally assembled cars and 150 percent for cars used for two years, 200 used up to 4 year, 300 up to 7 years and 500 percent for above 7 years used cars.
The excise tax now means that plastic bags will be charged 40 birr per kg.
By a directive from the Ministry of Revenue the percentage will take into account inflation every year, which was not the case previously.
New tax law winners and losers
Investors wary of developing Meskel Square
The Addis Ababa City Administration invites local investors to be part of the upgrading of the Addis Ababa Exhibition and Market Development Enterprise Centre, the upcoming Pan Africa Convention Exhibition Centre, expansion project, while investors claim access to land in the city should be applied properly.
At a closed door meeting held at the Sheraton Addis on Monday evening, Takele Uma Deputy Mayor of the city explained the project that the government is planning to implement at Meskel Square, according to sources who attended the short meeting.
At the meeting Takele told the estimated 350 investors that the local investors shall come with their own project ideas to get involved in the endeavor that may expand to 22 hectares at the heart of the city from the original study of plot of 12 hectares. The project has been designed by Fira de Barcelona, a Spanish company, at a cost of 350,000 euro.
The Mayor said that the exhibition centre is a single element of the total vision but the area is an ideal land that shall be expanded at the surrounding area of 22 hectares. “So the area would have its own master plan and the developer would come with their own idea. It could be a mall, real estate, hotel whatever you call it, which is profitable for you,” he explained.
“At the city level we will develop ten villages and so far some villages by Chinese and UAE investors at Gotera and Lagahar commenced, which is almost adjacent to the exhibition center,” the Mayor said.
He said that the project at Lagahar will cost USD 1.9 billion and the Chinese project, which is called Addis Tomorrow, is USD 3 billion, “but this one should have more investment since the actors are several local investors that come with massive small projects,” he explained. He said that some foreign companies showed interest in being part of the project but the city government prefers to include the local investors.
Some of the participants expressed their confusion about the meeting that they criticized for being disorganized.
They argued that it may be a tactical retreat from the claim that investors are saying the administration is not providing plots.
Since becoming a Mayor land transfer through lease has been suspended. “At the same time,” claimed the investors who attended the event, “the city administration is providing plots for very few individuals or companies without a clear process.”
CRACK-UP BOOM
What is a Crack-Up Boom? The Mises Institute defines it thus; ‘A crack-up boom is an economic crisis that involves a recession in the real economy and a collapse of the monetary system due to continual credit expansion and resulting unsustainable, rapid price increases. This concept of a crack-up boom was developed by Austrian economist Ludwig von Mises as a part of Austrian business cycle theory (ABCT). The crack-up boom is characterized by two key features: 1) excessively expansionary monetary policy that, in addition to the normal consequences described in ABCT, leads to out-of-control inflation expectations and 2) a resulting bout of hyperinflation which ends in the abandonment of the currency by market participants and a simultaneous recession or depression.’
Massive credit expansion with attendant debt infestation of economies is the modus operandi of late modernity. All countries, without exception, subscribe to this unsustainable financial regime. Even in poor countries like ours, where the economy is not deeply monetized, rudimentary crack-up boom still exist. In fact, it is now threatening to derail Africa’s current real economy, which is still based on primary production, agriculture, extraction, etc. Ethiopia’s development of the last three decades involves, amongst other things, the superficial financialization of the economy. This infatuation is concretized by the massive amount of credit creation, or put another way, by the creation of phony money out of thin air. FIRE (finance, insurance, real estate) remains the guiding light of the economy. The government is the major culprit in this undertaking. Excessive expenditures of the state that cannot be matched by direct government revenues need to be financed. By and large, deficit financing is the very act of printing money. This act is operationalized by the state owned central bank, in our case, the National Bank of Ethiopia. The deceitful process of trying to fill the gap between government revenues and expenditures is one of the major causes of inflation!
The business of commercial banks is to lend money. For the most part, this money is printed out of thin air. Deposits are actually decoys/gimmicks to goad the unsuspecting sheeple (human mass) into thinking that banks serve as intermediaries, i.e., taking deposits from the public and lending it to businesses. This of course is a farce. Commercial banks can create plenty of money out of thin air without having adequate deposits. This is the core of ‘fractional reserve banking’ or as we call it: the non-violent crime of the millennium! The only real restraints imposed on commercial banks originate only from the central bank. Even then, commercial banks will try to find ways to create more money than is actually needed by the economy. After all; it is by availing credit/indebting others, banks make their profits. To a large extent, the frightening mal-investment across the planet is the direct result of such a lopsided global financial regime. By incentivizing waste and useless projects, banks are the main culprits behind the planet’s environmental destruction and social polarization. As we have been saying repeatedly, money created out of thin air almost always go to the connected cronies of the state, usually for no good use! When the massive credit creation by commercial banks combined with the deficit financing of the state are put together, the result is massive inflation that afflicts the masses! See the articles next page, on pages 38.
What are the repercussions of inflation? Initially, people will refuse to hold onto cash, as its depreciation/declining purchasing power becomes apparent. Thereafter, long-term commitments or substantive financial transactions will shy away from using/quoting the local currency. Finally, during the stage of hyperinflation, prices skyrocket and the exchange rate of the currency becomes ridiculous, like when one USD becomes equivalent to one billion Zimbabwe dollars, etc. At this phase, prices are adjusted upwards several times a day. Soon, either bartering or the use of alternative currencies will be widely used, despite the protestation of the state. At this point, the state exists only in name. The collapsed economy leads the country into chaos resulting in another ‘failed state’.
Ethiopia’s crack-up boom is now unwinding. Only two decades after Ethiopia was sanctified by the global power that be and EPRDF was given a clean slate, (debt cancellation, peace dividend, etc.), conditions have become unsettling. In 28 years, EPRDF’s leadership, in its infinite wisdom, brought back the country into the world of debt slavery and conflicts, which are now threatening fragmentation. EPRDF’s reign is like a ghetto boy who makes it big in professional sport only to lose it all before he reaches his thirtieth birthday! We don’t think this is an unreasonable hyperbole! EPRDF’s leadership trusted only its political cadres. Complex issues/projects were assigned to these cadres, even when there is/was no visible capacity and competence. In fact, competence was incriminated to make room for incompetence. Justice became a weapon of political scorekeeping and outright looting. Probity gave way to grand political corruption. Integrity was so hated by the status quo, all efforts to bring about good governance was intentionally shot down (people led anticorruption initiatives, etc.) Parasitic oligarchs were cuddled and unashamedly favored over the working stiff, including genuine entrepreneurs, etc., etc.! Unless there is an open confrontation and a transparent showdown with the sordid practices of our recent past, the future will only be a continuum of the same old wash, rinse and repeat!
“But then finally the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against “real” goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap papers. Nobody wants to give away anything against them.” Ludwig von Mises (‘Human Action’) Good Day!
Wheat’s going on?
Local companies lose grain bid despite offering lowest prices
Bidders are complaining about being disqualified suspiciously from the Ethiopian Trading Businesses Corporation’s (ETBC) 400,000 metric tons of milling wheat bid which is being done in an attempt to stabilize the local market.
There were 11 international bidders participating in the procurement of 400,000 metric tons of milling wheat. The wheat was divided into four lots each amounting to 100,000 metric tons.
The bid document opened during the last week of November. It showed that Hakan Agro DMCC offered the lowest rate for the first two lots and Agrocorp International the cheapest price for the 3rd and fourth lots.
According to the information that Capital obtained, Hakan has offered USD 214.44 for the first lot and USD 218.44 for the second lot per metric ton for the first two lots that manages 100,000 metric tons each, while for the same lots Agrocorp has offered the second least price that are USD 218.47 and USD 219.97 respectively.
For the same lots the third least price offer come from Gem Corp DMCC, who offered USD 221.31 and USD 222.34 respectively.
At the same time Agrocorp has offered the least price for the third and fourth lots that are USD 221.47 and USD 222.97 per metric ton respectively and Gem Corp follows by USD 224.41 and USD 225.45. Hakan has also competitive price of USD 225.44 for lot three.
However, the companies of the first two were disqualified from the bidding process and were given the explanation that a minor mistake had been made and a correction was needed to benefit the country, according to sources.
In the amendment’s description of the procurement the bidders are expected to come up with an additional specification letter that would give a guarantee to assure the certification that the grain is free from Aphlatoxin and other pesticide residue levels and microbiological loads in order to comply with Ethiopian standards.
However, Hakan and Agrocorp, who offered a better price, failed to attach the guarantee letter for the Aphlatoxin certificate, according to a source who wanted to be anonymous.
Sources added that such kind of errors are very minor and that the bid performer, Public Procurement and Property Disposal Service that undertakes huge purchases for every federal procurement, shall ask the bidders to fulfill the documents within a single day if they are interested.
“This is the usual trend in the bid system that is also for the benefit of the country to save millions of birr,” sources argued.
“However the public body preferred to disqualify the companies that offer the least price and to award it to the third company,” they said.
Sources, who closely followed the case, said that the country will lose more than 47 million birr if the bid is awarded to companies other than Hakan or Agrocorp, both offered the lowest rate for the first two and the last two lots respectively.
The corporation via the Public Procurement and Property Disposal Service is in the process of buying 600,000 metric tons of milling wheat to stabilize the market. On the other hand other government agencies are also buying wheat through the same government body for reserves. Currently Gem Corp which won 900,000 metric tons from one million tons to supply to the Ministry of Agriculture is supplying the product and so far 300,000 metric ton remains.
