With the aim of boosting the production and export earnings, the Government of Ethiopia has decided to lift the tax on semi-processed leather exporters of, the Ministry of Trade and Industry said.
The Government made the decision because the tax imposed on export of semi-finished leather goods some years ago has seriously affected the tanneries and exporters, according to Teka Gebreyesus, State Minister of Trade and Industry who briefed reporters on Wednesday. He stated that as the tax imposed on the sector was huge and identified as the main factor for the country’s failure to increase the foreign currency earnings from the leather industry, the government has decided to lift the tax on export of pickles, white-blue and crest leather products.
As of this week all exporters of semi-finished leather are exempted from tax, according to Minister Teka, who mentioned the starting of execution of the new proclamation 61/2012 on Monday. It is stated that about 80 percent of skins and hides traders in Ethiopia has left the industry because they are discouraged by the tax. As a result, out of the total of 17 tanneries in Ethiopia five were closed and the remaining have been producing below their capacity. The tax has also discouraged foreign investors from investing in the untapped leather processing and export of Ethiopia.
It is also indicated that though Ethiopia has a huge potential for leather and leather goods products as the country is the leading in the number of cattle, no foreign direct investment was registered over the last seven years. With the aim of utilizing the potential of the sector, now the government is working to establish Leather City Park in Modjo town in Oromia region of Ethiopia.
“Such 100 percent removal of tax might affect thousands of cottage industries, which have created tens of thousands of jobs. The decision may cause shortage of leather in the local market. I think the Government need to find the right balance,” said Ermias Hassen, general Manager of Gosh Leather Products Factory, commenting on the decision of the government.
Reports show that though Ethiopia\s leather products such as shoes, jackets and bags are popular in many parts of the world, the country has not been able to earn the foreign currency from the industry by helping thousands of cottage industries to grow into medium scale manufacturing industries. Even though Chinese giants such as Huajian, and other including George Shoes and the like, have been engaged in manufacturing of shoes in Ethiopia for several years getting huge amount of incentives from the government, there was no significant change in the volume of the foreign currency the country is getting from export of shoes.
The small local manufactures of leather products have been complaining about the priority and huge incentives the government is providing for the foreign investors. Some argue that the local small industries have a huge potential to create jobs and join the export market if they get similar tax, duty free machines import and land by the government.
“Leather shoes making has a long history in Ethiopia probably over 100 years. If you ask me I have been doing it for over 30 years taking the profession from our elders. What the government officials don’t understand is that if the cottage industries like our get the same amount of incentives from the government, our investment will have a huge impact in the overall industry and the economy. That is because unlike the foreign investors, we re-invest 100 percent of our profit in our country,” Mr. Ermias says.