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Ethiopia: Government to Slap New Tax on Semi-Processed Leather Exports
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Addis Fortune (Addis Ababa)
6 January 2008
Posted to the web 7 January 2008
Wudineh Zinebe
The government plans to raise tax rates on semi-processed leather exports in two weeks in a bid to push leather makers to export finished products. The Ministry of Finance and Economic Development (MoFED) set the tax rate increase and tabled it to the Council of Ministers for approval.
The latest rate, which the Ministry of Finance declined to divulge, is expected to get final endorsement at the parliament after two weeks.
"We earlier had informed companies engaged in the sector to switch to exporting finished leather, and we have been assisting them," Seleshi Lemma, head of leather and leather products, textile and garment development at the Ministry of Trade and Industry (MoTI), told Fortune. "And there has been good progress."
MoTI two years ago had told such businesses to gradually shift to the export of finished leather products.
Ethiopia has 40.8 million cattle, 25 million sheep and lambs and 23 million goats. Countrywide, 23 tanneries are using these immense resources, processing 352,000 pieces of hides and 32 million skins each year. These tanneries supply pickle, wet blue, crust, and wet blue leather to the market.
In 2006/2007 budget year, Ethiopia earned 20.8 million dollars from the export of leather and leather products. The lion's share of the revenue came from pickle, wet blue and crust exports.
The predominance of these semi-processed exports seems to have concerned the government, which envisions to boost productions and exports of fully processed leather.
The county's five years strategic plan, the April 2006 Plan for Accelerated and Sustained Development to End Poverty (PASDEP), aims to increase the industry's share of Gross Domestiic Product from 13pc in 2005 to 15pc by 2010/2011. The plan gives special emphasis to textile, leather and agro-processing sectors, among others.
PASDEP is the driving force behind the efforts of the finance ministry to initiate tax reform.
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"Indeed, we have been told by the government earlier to adjust ourselves to the plan," Gezaw Assefa, chairman of Ethiopian Leather Industries Association, told Fortune. "But how much of the preparation has been completed by companies in the sector is debatable, as it requires huge investments."
A leather industry expert also questions the logic of the decision. He argues that the demand for semi-processed leather in the global market is higher than the demand for finished leather.
"Foreign companies use the semi-processed inputs the way they want," he said. "It is challenging for most local producers to put together a fully processed leather while maintaining the quality and design demanded internationally."
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