A few months ago, the government (Revenue and Customs Authority) removed the duty free privilege it offered its millions strong Diaspora in order to entice them to move back.  Predictably, many in the Diaspora are up in arms at this latest move which effectively removes the last remaining portion of the welcome mat out from beneath their feet. 

Apparently there had been too many instances of abuse of this privilege which was behind the Authority’s rationale for this latest move only a few years after the perk of importing a vehicle duty free was also abruptly discontinued for the same reasons.  The weekly paper, Capital ran an editorial praising the decision but also underscoring that the overall intent of attracting the Diaspora was commendable.  It went on to point out that the government would be “…best off doing this by focusing on creating a generally favorable growth environment, not by attempting to nurture chosen industries and demographics”.  

Unfortunate Misnomer

Part of the problem is that this privilege has been viewed as a perk or an attempt “…to nurture…” the Diaspora when it is legitimately one of the few, fair incentives that can be offered to this demographic to help ease a planned transition back to Ethiopia.  It is certainly not a reason in and of itself to overcome the inertia of an established lifestyle in a very different environment, a significantly higher standard of living (in the materials sense, that is) as well as the multitude of opportunities open to many abroad for living a comfortable and secure life.  In fact, for many in the Diaspora, the basic desire to return home is usually tied to factors that include wanting to play a constructive role in the development of the country, the desire for a simpler and in some ways more fulfilling lifestyle or a never ending hunger for the cultural aspects of living in Ethiopia that can never be duplicated elsewhere no matter how many Ethiopian restaurants, injera bets, markets and churches are built there.  The perception of opportunity can certainly play a significant part as well but it is usually not at the very core of someone’s contemplation to return home. 

So let’s say that a certain Diaspora family makes the momentous but tough decision to return to Ethiopia based on some combination of the above factors.  The presence of a duty and excise tax scheme as onerous as Ethiopia’s actually poses such a significant financial disincentive for making the move that if it were to be considered as part of the decision making process, a good many potential returnees could be stopped in their tracks.  How big of a disincentive could this be?  Let’s do the math….

For a small family of four (parents and two children) comeing from the United States, it would be reasonable to assume 2 automobiles (one a sedan, the other a sport utility vehicle) and a houseful of furniture including various electronics, computer equipment and so forth.  The total duties and excise tax due on such a shipment would most probably total well over 750,000 ETB if not significantly above that figure.  The vehicles alone would probably command over 600,000..  Even with the recently devalued birr, that’s a whopping $60,000 in USD that this family will need to have on hand just to pay duty so their belongings can make it back to Ethiopia with them.  We could talk about all the other expenses (transportation, freight, etc.) that they will also incur but those are marginal at this point.  In fact, we can say that beyond the possible purchase of a home in Ethiopia, paying duties on their belongings will be the biggest expense this family will face in its attempt to relocate back to Ethiopia. 

The only people for whom this disincentive will be irrelevant, are those fortunate enough to be so well off it would never have mattered anyway.  Which we can safely assume won’t be more than a minute percentage of the Diaspora.  Besides being counterproductive to a stated government priority (attracting some portion of the Ethiopian Diaspora back), the implicit effect of discouraging the not so rich from returning sends the wrong message absent other mechanisms that might reverse this. Some have previously suggested the creation of Diaspora specific departments and so forth in certain ministries in order to fast track investment permits or other standard procedures that every other investor has to go through.  But these types of facilities are in fact the ones that would create an unbalanced (and unfair) playing field and that therefore should not be contemplated.  Rather, targeted ‘benefits’ aimed at the transition process itself are the ones that should be explored and promoted.

But What About The Abuse?

The fact that abuse exists in the system is no reason to do away with it altogether but to increase enforcement of the law within it. And there are definitely a number of steps the authorities could take to cut down on the abuse.  We could start with the invalidation of any and all legal contracts/transactions involving duty free goods.  Move on to the complete and permanent confiscation of any such goods found to have illegally transferred ownership – a development that would no doubt have a very chilling effect on the proliferation of high end sport utility vehicles in Addis.  Finally, if the government is really serious about enforcement, how about jail time for the offenders?  Right now, the only thing that happens if Gumruk was to impound a duty free vehicle that had illegally been transferred to a new owner is the release of the car to that owner upon payment of the applicable duties.  In other words,  pay off an interest free loan…

Authorities here always seem to be trying to solve enforcement issues with legislative changes.  Trying to combat the abuse by removing the privilege altogether is a bit like cutting off ones leg to try and cure an ingrown toenail.  The impetus behind the rule in the first place was to advance the government’s strategic interest of attracting back as much of its Diaspora as possible to spur new investment, reverse brain drain and other legitimate interests.  So the appropriate solution to the problem is to find a way that fulfills the intended objectives while minimizing the abuse. 

Comments (4)

president
written by Haile Kebede , December 16, 2009

The luck of enforcement is always and the anger among the the people who
detest favoring the diaspora is the main reason and of course and a sensible leadership.if duty on the car is so unreasonable (201%)after all
done is the main cause of the problem. if the government tax system should be no more than 70% for new and 30%plus per model year(i.e. 1 year older 90% 2year old 110% 3year old 130% 4year old 150% 5yer old 170%
any thing after 7 year old should not be imported to the country we all win at the end

MD
written by Daniel Tesfaye , February 02, 2010

I found this site to be quite interesting and informative. Over informal discussions with my colleagues we often talk about of possible returning back to Ethiopia. The outrageous taxation issues on basic needed commodities as described on the article is quite mind boggling. Mind you, some are leaving very lucrative life style and work environments to return and the response is just as simple as slap on the face. I am not quite sure about the extent and magnitude of the existing abuse. I am quite certain that there are many other ways to fix the issues . Confiscating can be one measure and imposing jail time can also be considered if this is considered to be against the law. If the government is serious about encouraging the return of Diaspora it needs to get out of the box thinking and come up with creative ways.

KE ANJET KALEKESU ENBA AYGEDEM!

Daniel Tesfaye, MD

“It is not the healthy who need a doctor, but the sick." Jesus
written by Kirubel Z. , February 15, 2010

The investment tax free requirements are set to benefits the few. The few are those with the fortune and who are capable of paying taxes. What about the less fortunate citizens? The tax to be collected from the permanently moving--as years go by--citizens is also a contributing factor to the development effort of the country.

The government shall be strong to providing procedural guarantee when its duty free enactment is abused. Instead of keeping the dialogue going or challenging the policy for the greater good, shutting the conversation does no help to cure the problem nor to encourage returnees.

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written by Dawit , February 20, 2010

Let us say you have built the house and now you're ready to move back home as planned.

Customs says, wait a minute, we've changed our mind and will tax you $60,000 for the vehicle and crap you're bringing to your house hold.

For the "Leba" Diaspora is no problem; they will always find a way to do what it wants to do. The average professional is screwed as always; you are screwed if you work for local "bir" salary to begin with. And now, if you bring some dinaro working abroad legally to make your life a little easier the government won't honor its promise of not taxing you.

I call this bet and switch by the government an extortion. One should take them to court.