The tax system in Ethiopia makes cars inaccessible to ordinary citizens. The prices are double the original price. High prices stimulated illegal sales, and unreasonable high taxes are believed to be a major factor in illegally trading vehicles in Ethiopia. Along with customs duties, car importers in Ethiopia are subject to five different taxes: 15% VAT; up to 100% excise tax (depending on the engine size); 10% surcharge; 3% withholding tax; and income tax.
Depending on the car type, model year, and engine size, tax is more than 500% of the car's import price. Taxes imposed on local installers are only 5% lower than on commercial importers. This leaves a small incentive for automakers to set up industry or assembly plants in Ethiopia. The senior prosecutor at the Ethiopian Ministry of Justice, Wondiye Birhanu, said the domestic car market is limited to legitimate businesses but lucrative for illegal traders.
Taxes are seen as a major factor in the trafficking of a vehicle illegally through Ethiopia. However, the business has two ways to avoid duties and taxes. The first concerns the countries that produce cars, such as Japan, thru Dubai, which has become a center for import and export trading for African countries and the Middle East.
An unnamed source said: In Ethiopia, there are restrictions on importing cars older than eight years, and the government levies taxes based on the year the car was made. To fix this, the importer works with automakers in Dubai to change the meter readings to make the car look newer. The imported cars come with fake documents and production dates. Another unnamed source who works for Toyota in Dubai said the Ethiopian importer also colluded with technicians to change the car’s chassis and engine numbers. Documents are falsified to reduce engine capacity, which results in lower taxes because vehicles with smaller engines cost less.
Such cars can easily pass customs because authorities lack identification skills or equipment. Also, false high-quality documents do not give customs and car buyers any reason to doubt their authenticity, said Muluken Megersa, an intelligence officer at the Revenue and Customs Office. The former Toyota employee said that because the vehicles were imported into the UAE and then exported to another country, the Dubai authorities do not invest in detecting and combating illegal trade.
The second illicit vehicle trafficking route to Ethiopia is from bordering countries. Again, the cars are trafficked into Ethiopia without any customs checks. Birhanu said illegal traffickers bribed employees of the Ministry of Transport in different cities to obtain license plates without showing cars and paying taxes and duties. This allows the vehicles to travel around Addis Ababa. There, car shops removed license plates and used false papers to sell the car as a new import.
Megersa said buyers sometimes buy used cars for cheap at government auctions to use documents on expensive contraband cars.
In Birhanu's view, Ethiopia is suffering not only in tax and customs revenue but also in crime prevention and security.
If the tax system needs improvement, the government should raise awareness of these crimes and support alternatives in border communities. Megersa recommends that tax and customs authorities work with the Ministry of Transport to control and track documents. Tax and customs officials need inspection expertise and equipment to improve verification procedures for entry into the country and enhance record keeping. Without these resources, the illegal activities will cost Ethiopia in the future.
