Abstract:
This study was conducted to investigate and describe the regulation of investment incentives
granted to textile industries: the practiced in Adama and Lebu. The poor estimation of capital
for investments may create the possibility of incentive abuse and unnecessary costs. And
Ethiopia's duty drawback scheme may be mixed with the duty-paid goods on the market and
create market distortion. The objective of the study is to investigate and analyze the regulation
of investment incentives granted to encourage textile industries from both legal and practical
perspectives. It employed both doctrinal and socio-legal approaches with a cross-sectional
descriptive design. Interviews with key informants and semi-structured interviews with legal
researchers and experts were conducted. The study indicates that investment incentive
regulations and proclamations need amendments to be in line with global technology. Further,
there is a clear problem of legal enforcement and practice in the study area. According to the
findings, the theoretical explanations and the primary data confirm that area and sector-based
investment incentives have not been effective. Besides, because of poor inspection and
regulation of the responsible government organs, the government has been losing different
amounts of income in the name of investment incentives in the study area. Furthermore, in the
absence of a well-designed legal framework for tax incentives, they are vulnerable to abuse.
Moreover, the study clearly investigated that there are different practical cases of investment
incentive abuse and avoidance in different stages of investment work. The researcher concludes
that the government should reform the incentive frameworks from an area and sector-based
approach to a performance-based approach and establish a capacity-building strategy for
regulatory organs in order to combat incentive misuse and evasion. Finally, the researcher
recommends that the Ministry of Finance should have carefully designed the framework of the
tax policy and investment incentives in line with the objectives of the investment policy and
should have incorporated the board decisions, circulars, or individual cases of investors into the
formal proclamation, regulation, and directives of investment law
