Finance Ministry Retakes Reins on Investment Incentive Provision

The federal government has centralised the approvals for investment incentives as the Ministry of Finance takes over the responsibility from various agencies.

The Ministry assumed the authority before approving a new directive drafted to enforce the new working arrangement. The revised structure limits the role of the Investment Commission to reviewing incentive requests online through a newly established digital system.

The Customs Commission and regional investment offices were also previously involved in reviewing requests for incentives, leading to accusations of gross mismanagement and corruption since the process has been scattered. Officials at the Ministry hope the change will reduce misuse by investors and abuse by federal and regional agencies. They expect the new system to strengthen monitoring and evaluation of incentive provisions, including follow up on the status of investments.

Tax holidays for priority sectors, income tax holidays, duty-free imports, exemptions for raw materials used as inputs for the manufacturing of export goods, and the provision of land at nominal lease prices are some of the incentives the government has availed to foreign and domestic investors.

The revenues the government has forgone as tax incentives could equal the country's annual budget but there is no way of knowing, according to Mulay Weldu, director of tax policy at the Ministry of Finance. He believes the centralisation of the approval process would help the government monitor the process and ensure incentives are provided to the right investor for the right purpose.

"Investment incentives have to be provided in a targeted manner," said Mulay.

Insiders have been dismayed by investors who misused duty-free privileges for imports other than what they were granted. Some were given the privileges to import for the hospitality industry but were found importing machinery for sale in the domestic market. The Ethiopian Investment Commission had received 4,300 applications for incentives last year, 80pc of which were submitted online. Over half were from the manufacturing sector, while the service and agriculture sectors followed. Almost two-thirds of the applications submitted were for the duty-free import of capital goods.

Some of the officials at the Commission voice their concerns that centralisation may not be the answer to discipline investors who misuse their privileges.