Japan manufactures, Ethiopia makes money

Japan manufactures, Ethiopia makes money

By Andualem Sisay Gessessse (a kind of tax policy brief) – David Ruppi is a Ugandan journalist. I met him in Kampala, Uganda a few years back at a training for journalists. He lives out of Kampala. David had to drive his old Japan made car for about an hour to get to the training every morning. David told me that he bought that old car about six months ago for around $800. It is unthinkable to find a car for such a cheap price in Ethiopia, which is a landlocked country.

As I lived in Uganda some years back for about one year, I know how cars (used or new) are much cheaper than in Ethiopia. But I never heard someone buying a used car for less than a $1,000 before.

In Ethiopia, the cheapest price one can find an old rundown Japanese car made in early 1990s, is probably for around 140,000 birr (over $5,100). In fact I was recently checking the price of a two-door Japanese Daihatsu made in 1992 to buy for my wife from a person who used the car for about a decade.

What I found out was that its last price is 170,000 birr (around $6,200). This is not the case in any African country I visited so far – be it in a landlocked or those who have access to port.

Walking on the streets of Addis Ababa or other major cities in Ethiopia, you may wonder why you observe too many used small 1,300 CC Vitz cars of Japan on the streets.

It is because they are relatively cheaper between 270,000 birr – 340,000 birr ($9,800 – $12,500). Guess for how much you may purchase online? starting from less than $800 as you see. Of course shipment from Japan may cost you additional around $1,000 up to Djibouti Port.

In Ethiopia the resell value of Japanese car, especially Toyota is very high. After using for several years an already used before old car buying it, you are most likely to sell it with much profit.

In fact recently a friend of mine, who bought Toyota Executive for 430,000 birr ($15,750) a few years ago, has sold it for half a million birr ($18,300).

Japan manufactures, Ethiopia makes money
Japan manufactures, Ethiopia makes money

So my African and other friends from abroad reading this article, please don’t get surprised, when you see long lines of people waiting for public transport in big cities like, Addis Ababa.

This is one of the major reasons. Had the price of used cars been available for around $1,000 even $2,000, I can assure you most of those people in those lines including me, could have own one and won’t be late for work, at least. We wouldn’t have been waiting for hours in the heavy rain and the sun, while wasting our valuable productive days on the streets.

But why is the price of an old car of about 30 years old that much expensive in Ethiopia?

My short answer is that because our “our genius tax policy makers”. They are convinced that the vehicles people drive to go to work and from, are “luxury products” and should be the major tax income source of Ethiopia.

The tax authorities may charge an importer of a $1,000 used Japanese car, which are available online, $5,000 – $10,000. This for the smallest CC vehicles of around 1,300 CC cars and has to be made in the 1990s or around the year 2000.

Tax Calculation

But where does this tax calculation comes from? Well, in the first place, the tax authorities believe that the price an importer claims to buy the car for is fake price – They think that the invoice price of an imported car is faked  / reduced down to at least less than 100% or even 200% of the actual price for the purpose of reducing the tax. So they start by reading $3,000 invoice of an imported car as $6,000 or $9,000 before they begin calculating import taxes.

I know it is indeed a common problem in many countries most importers of products are engaged in such tax avoidance 9under-invoicing). In fact that is one of the issues I have been reporting about.

Back to our topic, for this purpose the customs authority has its own database with the price of every vehicle for taxation purpose, which is not bad. But the price of a vehicle with same brand and manufacturing date can be different because of the mileages and the conditions of the car , which leads to huge price differences when an importer buys a car from abroad.

So, even if you show the authorities the exact price with evidences such as, online shopping price, it is not acceptable. Hence, the vehicle you genuinely purchased for $1,000 can be considered by customs as a $2,000 or a $3,000 car.

At the end of the day, in total adding all the different taxes applicable on vehicle import, you may be charged between 130% to $200% tax of the above total estimated cost of the car. This means, you could be paying a total tax of between $3,500 to $6,000 for an old rundown Japanese car you actually bought for $1,000 and transported up to Djibouti Port for an additional cost of around $1,000.

Therefore, if you are a used vehicle importer in Ethiopia, you are expected to spend a total of $5,500 if you are lucky. If not lucky you may spend up $8, 000. This is a total investment of an importer for a rundown $1,000 Japanese vehicle.

The final consumer may buy this car for $10,000 or even for $12,000 thanks to our “genius tax policy makers”, and  greedy importers who profit margin is unlimited…

When it comes to vehicle import duty, Indeed Ethiopia has an unbelievable tax rate in Africa if not in the whole world. That is why I said Japan manufactures, Ethiopia makes money without making a single part of that car. With all the designs and the process of manufacturing a new car, I bet there is no vehicle manufacturer in the world that makes that much profit from a single car, including the Japanese  companies that manufacture those vehicles. I wonder how in the world transportation and the right to choose a means of transportation, which is the basic necessity of human being, can be considered as luxury in 21st century.

For a nation with poor and inefficient public transport system with some 110 million population and promised to join the African free trade area this January, how on earth can cars be luxury? How could Ethiopia expect its citizens to transport and trade with their neighboring countries and become competitive when the Africa Free Trade Area goes operational in January 2020?

And you can’t expect Ethiopians to be productive spending hours waiting for public transport. I am saying this because most of us in those tax waiting lines can get to work on time and productive, had it not been because of you “the genius tax policy maker” who, considered transportation and owning used cars as a luxury.

The Big Picture

Mr. / Mrs. Genius tax policy maker, I suggest you look around and learn from other countries; be creative, find alternative means of tax without forgetting the big picture and the role of the government in improving the living and working conditions of its citizens.

You may think like this: for instance if I have access to a cheaper old car like Uganda between $1,000 to $3,000 instead of saving $10,000 for a decade, I am going to invest on something profitable the remaining $7,000, which will create jobs and additional tax revenue to the government.

I may think of investing that money on a small start professional leather jacket manufacturer, shoes maker, tailor, traditional cloth weaver & designer or even partnering with a friend who can also invest that much and find a marketing graduate to collect tomatoes from farms like Mekki area, and export to Djibouti.

Real Experience

I am not talking something unrealistic here, especially for my Ethiopian friends who think that one need millions of Birr to start a side business. Here is my own personal example, for the past few years, I have been investing between 200,000 birr to 300,000 birr (between $7,000 – $11,000) every six month on youth who produce tomatoes and onions using irrigation technique around Debre Zeit area in Oromia Region.

In 2017, Going to visit my part time vegetable farm business with a colleague who is also a journalist

After I purchased for them couple of water pumps depending on the size of the land and PVC pipes as well as, all the inputs such as fertilizer and pesticides, the youth will rent the land and often add their family’s land to start the farming on equally profit sharing basis. That is all.

We get a profit of between 30% – 50% every six month if all goes well. Of course, there are times I have lost half of my investment due to bad weather.

But I am happy that I am investing my savings from the past 15 years of my income as a journalist and created jobs as well as, decent income for about a dozen youth instead of buying an old used car like my friends for that same amount of investment.

But don’t ask me how much tax I paid for it. This is an informal business at pilot level with yet a potential to be scaled up into formal agribusiness in the future with access to land and credit, etc…

In addition, since such a bold tax cut measure on import of vehicles will automatically double or triple the number of cars on the streets of Ethiopia. It will also result in more jobs to auto technicians, more sales of spare parts, oil and related products. The ultimately result will be more income to the businesses and more tax income to the government.

Furthermore, if people invest that small on a car, then they can also be able to work overtime staying in office or do their own part time jobs after office hours, such as teaching, etc, without worrying about transportation.

I believe the investment options, opportunities and additional revenue streams for both the citizens and the government are unlimited…

In my view such bold tax cut on imported vehicles will have a multiple positive effects in the lives of the people and boosting the income as well as living contribution of the citizen and improving the economy in general.

Mr. / Mrs. Genius tax policy maker of Ethiopia, what is required from you is to think out of the box. The fear of losing the huge tax income from the current huge tax rate cannot be an excuse.

If it is about tax, government can still generate more only by focusing on the less regulated tax doggy big local and foreign companies.

After all how could you (Mr. / Mrs. Genius Ethiopia’s tax policy maker) justify giving tax break of ten years for the investor who bought an already operational gold mining and yet chase startups to stat paying tax right away after opening their business?

Will you please give these entrepreneurs a tax break for at least few years like you did for those thousands of fake investors for decades. let their business first flourish and create more jobs to their fellow citizens first.

I hope you heard me right, Mr. / Mrs. Genius Ethiopia’s tax policy maker’!

The reformist Prime Minister Abiy

Now that the country has been investing on expansion of road networks, I believe it is time for the people of Ethiopia to start using those roads with access to affordable vehicles, even though our grand children are yet to pay back the loans used to make those roads :)

Therefore, I urge the reformist Prime Minister Abiy to look into this matter and help Ethiopians have access to cheaper used cars, like the people of other African countries and invest the remaining on other productive areas.

Japan manufactures, Ethiopia makes money
Japan manufactures, Ethiopia makes money – Photo credit- AddisFortune.net

After all, why is it forbidden for an Ethiopian like me to buy online one cheaper car of my choice or receive a vehicle my relative abroad bought for me and process it through the formal tax system? If we buy laptops, cameras ad other staffs and collected after paying tax, why not vehicles??? Which one is more basic and necessary?

Why do I need to go through the few importers and pay them additional money (profit) as long as I have access to the forex to make the payment and pay the necessary tax before collecting the car?

In fact allowing families to receive vehicles from relatives abroad by paying their relatives in the county in local currency, can save the country from spending hard currency to import vehicles of personal use.

In a country suffering from severe forex shortage, the hard currency, which is being used by the importers now can be used for importing medicine.

Since almost every family has at least one relative abroad, such arrangement will save the country from some of those tax doggy importers, which are at the same time exporters with another name. I believe this one of the means to boost forex and reduce those engaged in money laundering under the name of legal import.

It has to be the right of every family at least to buy a family vehicle of its choice like we buy cameras or laptops online and pay tax on arrival. It is not appropriate to force me to have an import license to buy a single vehicle for my family.

It is also crazy when the government tells me to pay an importer about $1,000 or more, just because she/he has an import license. Do you even know that such amount of money can buy two 990 CC Toyota Vitz?

Why would I pay that much profit margin for the importer as long as I recruited a custom clearing and transporting agent to collect my order and after paying the tax? Just because she/he has the license?

Ethiopia’s current ill-intentioned tax policy can make the rich more richer. But it is not appropriate to force me pay my hard earned and save money to these greedy automobile importer. I don’t have to be forced to buy your crazy motive and make them more richer by paying them for just holding the license. No!

(By the way in a separate note, I heard that currently the customs authority in Ethiopia charges import tax of around $3,500 for one of these cars. Isn’t that crazy? Japan, does your auto manufacturers make that much net profit from a brand new vehicle? I don’t think so…)

Please, please I urge you to review your crazy tax regime immediately if you want Ethiopia to compete in the regional Africa market and your intention is to help ALL Ethiopians live a better life.

So my plea to you Prime Minister Abiy are two: 

  1. Review and cut our tax rate on imported personal use vehicles, and
  2. Allow citizens to receive cars bought for them by relatives abroad, or allow them to directly buy one per family without a vehicle import license.

Please, please, help Ethiopians to start living in the 21st century, at least like our neighbors? I wonder why this country decided to make our lives so difficult and for how long.

Prime Minister Abiy, I know our years have already been eaten by such policies but don’t forbid our kids to think and live like global citizens in the 21st century. You may take my suggestion as a brief policy brief by an amateur…