VZCZCXRO2231
RR RUEHROV
DE RUEHDJ #0893 3211407
ZNR UUUUU ZZH
R 161407Z NOV 08
FM AMEMBASSY DJIBOUTI
TO RUEHC/SECSTATE WASHDC 9692
INFO RUCNIAD/IGAD COLLECTIVE
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION WASHINGTON DC
RHMFIUU/CJTF HOA

UNCLAS DJIBOUTI 000893 
 
STATE FOR AF AND AF/E 
LONDON, PARIS FOR AFRICA WATCHER 
CJTF-HOA FOR POLAD 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EFIN ETRD ODIP DJ
SUBJECT: DJIBOUTI GETS READY FOR JAN 1 VAT TAX 
 
¶1. (U) SUMMARY.  After several years of discussion, the GODJ will 
implement a 7% value added tax (VAT) beginning in January 2009. 
During the first implementation phase, only Djibouti's largest 
companies--those with an annual turnover of almost half a million 
dollars--will be required to charge VAT.  Although there is some 
trepidation among businesses about the mechanics of VAT 
administration, GODJ tax authorities continue to run an aggressive 
education campaign.  To assuage consumers' concerns that the VAT 
will further push up already inflated prices, tax officials have 
used advertisements in Djibouti's national newspaper to highlight 
the VAT's intended negligible impact on final prices.  In light of 
ongoing high levels of food insecurity, primary foodstuffs will also 
be exempt from VAT.  END SUMMARY. 
 
¶2. (U) According to Mahdi Osman Awaleh, Tax Director for the 
Ministry of Finance (MOF), the GODJ began preparing for the VAT in 
2003 by modernizing administrative procedures, computerizing the tax 
system, and tightening enforcement of tax collection.  Partly as a 
result of these efforts, Osman said, 2006 and 2007 saw 
record-breaking tax revenues.  Preparations continued with the 
formation of a VAT Technical Committee in January 2006, and the 
first official public announcement by the Minister of Finance in May 
¶2007.  France and the International Monetary Fund (IMF) have 
provided ongoing technical assistance to the Ministry of Finance in 
preparation for the VAT, and the IMF explicitly required VAT 
implementation as part of Djibouti's recent new Poverty Reduction 
and Growth Facility. 
 
¶3. (U) Starting January 1, 2009, VAT will be levied at a fixed rate 
of 7%.  The 7% VAT will be deducted from any applicable Internal 
Consumption Tax (TIC), which ranges from 0% to 33% depending on the 
item.  Only businesses with an annual turnover of DF 80 million (USD 
452,000) will be required to charge VAT during the first 
implementation phase.  Later, Osman said, the ceiling will be 
gradually lowered to apply to more businesses.  According to Osman, 
about 150 companies will fall into the first group, and all are 
well-structured, with sound accounting systems.  The Ministry of 
Finance has published a VAT Guidebook, and has posted it on the 
Internet.  In addition, Osman said that the tax office was reaching 
out to companies to encourage them to begin working with an 
accounting firm or with the Chamber of Commerce to ensure that their 
accounting systems will be able to process VAT correctly.  Osman 
said that his office intends to be somewhat lenient as businesses 
grapple with the new tax, and will not immediately impose sanctions 
for late VAT payments.  Tax officials have also been holding regular 
VAT workshops for businesses and government officials, and have 
printed a series of full-page information bulletins in the national 
newspaper. 
 
¶4. (U) A large number of goods and services will be exempt from VAT, 
including school books, pharmaceutical products, banking and 
insurance activities, kerosene, and basic foodstuffs.  A full list 
of VAT-exempted products and services is available in the VAT 
Guidebook, and the exemptions have been prominently featured in the 
ongoing newspaper awareness campaign.  Osman said that while the VAT 
is intended to raise additional tax revenue, its price impact on 
consumers will be negligible, with increases of a maximum of 2% on 
some products. 
 
¶5. (SBU) Final legislation on the VAT is expected to pass by 
December.  EmbOffs have not/not seen draft legislation.  However, 
Osman told EconOff that the legislation would explicitly exonerate 
diplomatic missions and aid agencies and other exempt institutions 
from VAT payment.  According to Osman, diplomatic missions and aid 
agencies will receive an upfront exemption on imported goods, and 
will be able to submit VAT receipts for locally purchased goods for 
reimbursement. 
 
¶6. (SBU) COMMENT. While the GODJ hopes that the VAT will raise 
much-needed revenues, many ordinary Djiboutians worry that it will 
simply exacerbate price inflation for basic goods.  These fears 
linger, despite the GODJ's active campaign to educate businesses and 
consumers.  While the first group of companies required to charge 
VAT is likely well-equipped to handle the change, both tax officials 
and businesspeople are braced for the eventual expansion to 
secondary groups of smaller companies, many of which operate with 
informal or obsolete accounting systems.  In coordination with 
Djibouti's small diplomatic corps, Post will continue to monitor the 
status of the final VAT legislation to ensure that appropriate 
exemption conditions are included.  END COMMENT. 
 
SWAN