Pharmaceutical manufacturers are in dispute with customs officials over alleged inflated valuation of imported raw materials. The Ethiopian Pharmaceuticals & Medical Supplies Manufacturing Industries Sectoral Association (EPMSMA), representing 24 members, claims that customs officials are overpricing raw material imports by up to 100pc, raising production costs and destabilising drug prices.
In letters to both the Ethiopian Customs Commission (ECC) and the Ministry of Health (MoH), the Association has asked for a fixed price framework and a revised, accurate list of raw materials to resolve these issues.
Daniel Waktola, head of the EPMSMA, said that the problem started when customs began inflating the prices of raw materials, which has caused severe financial burden.
Pharmaceutical manufacturers were exempt from taxes until two years ago, when they began paying a three percent social welfare tax. The inflated raw material prices are further increasing costs and threatening the stability of drug prices, according to him.
“Manufacturers need support, not discouragement,” Waktola said.
Customs officials argue that they are following the World Customs Organization (WCO) Convention on the Valuation of Goods to prevent under-invoicing and increase tax revenue. Mengistu Tefera, the price valuation director at ECC, says his office uses six procedures to determine the transaction value of imported goods, which includes international prices, cost deductions, and the country of manufacture.
Mengistu claims that many importers fail to prove their products are not under-invoiced and that the Commission often uses prices from previous imports to assess current values. “The Commission has responded to the rise in under-invoiced goods,” he said. “We are following our own procedures to determine prices.”
Kedir Sharif, country director of Julphar Plc, which imports over 230 raw materials for pharmaceuticals, said customs officials misunderstood a shipment, inflating its price from 841,000 Br to 1.6 million Br. Customs officials assumed both the freight and cost of goods were under-reported, according to him.
Currently, the 14 local manufacturers are operating at just 20pc of their capacity and meet only eight percent to 12pc of domestic demand, according to Daniel.
In 2021, a new customs tariff book was introduced, covering 8,000 tariff items. The goal was to make domestic producers more competitive by increasing duties on imported goods that compete with locally manufactured items. The tariff book includes six tax rates, ranging from zero to 35pc, depending on the type of goods.
Customs Commissioner Debele Kabeta argues that 86pc of imports are under-invoiced. He says there are discrepancies between declared and actual quantities of imported goods.
The social welfare tax was introduced to broaden the tax base with exemptions for capital goods, fertilisers, and petroleum products. The tax is calculated based on the value of imported goods, including freight and insurance costs.
The government has set an ambitious goal of collecting 400 billion Br in customs duties this fiscal year, doubling last year's target. In 2023/24, customs duties brought in 190.9 billion Br, with the social welfare tax contributing 18.7 billion Br. The target for social welfare tax revenue has now been raised to 28.7 billion Br.
However, rising drug prices are straining hospitals. Teshome Hunde, medical director of Zewditu Hospital, shared that the hospital's annual drug procurement budget of 100 million Br covers only half of its needs due to inflated prices.
Tamiru Tilahun, a lawyer with expertise in customs law, explains that WCO allows customs authorities to use their own valuation methods in certain cases, such as when the buyer and seller are related, when discounts are given, or when profit margins are negotiable.
Tamiru said that customs officials focus too heavily on collecting taxes, leading to over-invoicing and unjust rejection of declared prices without proper evaluation. Manufacturers often lack the necessary documentation to effectively negotiate with customs, according to him.
He recommends consolidating the Commission and Ministry of Revenues into a single entity, to create balance, with each department’s interests serving as a check on the other’s actions.
"Reforms are urgently needed in customs," he said.
PUBLISHED ON
Dec 29,2024 [ VOL
25 , NO
1287]
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