Investigating the Regulation of Investment Incentives Granted to Textile Industries: The Practice in Adama and Lebu

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