The hall of Ethiopian parliament in Addis Ababa

Bill to Amend Excise Taxes Tax Law Proposed in Parliament

– The bill aims to Impose Excise Tax on Telecom Services, improve exaggerated taxes on cars

ADDIS ABABA – The government on Tuesday proposed a bill to amend the excise tax proclamation proposing to impose on telecom services as well as on items imported to Ethiopia under duty-free privileges.

The bill was introduced to the parliament came only a couple of years after the parliament amended the Excise Tax Proclamation.

MP Meseret Haile, Government’s whip, said the last amendment to the law helped to improve the tax base and boost tax revenues.

She said the 2020 law that imposes up to 500% excise tax on import cars older than 7 years helped to discourage old car imports, supporting efforts to keep the environment safe.

But, the whip said the rates of excise tax levied on some have are very high. She also noted that some local factories are also paying excise tax twice for their inputs and final products, making it difficult to compete with imported items.

“These factors have made it necessary to amend the 2020 excise tax proclamation,” said Meseret, apart from adding provisions to ease some challenges observed in the tax administration.

Expanding bases

The planned amendment to the 2020 proclamation aims to make some items and services subject to excise tax while exempting TV sets and video cameras from tax.
Applying a 5% tax on telecom services is one of them. The bill says the move would generate “more revenue to the government to support development activities.

Goods imported under duty-free privileges are also expected to be subjected to excise tax under the draft law.

The bill says it is “found not proper” to grant persons and organizations with special duty and tax privileges to also import goods on which excise tax is imposed because of the damage they inflict on the environment.

More changes

The bill also grants deductions for excise tax levied on inputs and raw materials used for the local manufacturers whose final products are subjected to similar taxes.

Accordingly, it proposes the current 60% excise tax imposed on pure alcohol used as inputs by beverage manufacturers to reduce to 10%.

Manufacturers that use sugar as their raw material will also get the excise tax levied on the input reduced to 10% from 20%.

Another change proposed under the bill is to exempt TV sets and video cameras from excise tax.

“Exagirated taxes” on Cars

Besides excise tax, car importers in Ethiopia pay other forms of tax: VAT of 15%; 10% surtax; withholding tax of 3%; and income tax. Together, this adds up to more than 374% of a vehicle’s import price based on the type of car, age, and engine capacity.

Authorities say the total tax-induced price shows how “exaggerated” Ethiopia’s rates of tax and customs duties are when compared to other African countries such as Kenya (96%), Rwanda (71%), and Ghana (40%).

The previous amendment reduced the excise tax for new cars with 1300cc and below engine capacity from 30% to 5% while imposing higher rates imported under categories for cars with 1,301cc and above engine capacities.

This has affected the government’s revenues after the level of new car imports in most of the car import categories dropped significantly.

The draft proclamation proposes for Ethiopia to adopt other countries’ tax applications and have four categories to compute excise tax on new imported cars.

The bill changes the lower threshold to 1500cc and creates 1501-2501cc, 2501-3000cc, 3000cc, and above as second, third, and fourth categories. And it also proposes a reduced excise rate of 10%, 20%, 30%, and 60%, respectively, for each category.

The bill, if approved, will significantly decrease the price of cars especially those with medium to higher engine capacities.

Authorities’ computation shows the maximum tax and customs duties of an imported car will drop to 121% from the current 374%. The decision could make the government lose up to 5 billion Birr in annual tax revenues.

This will, however, drop within a range of 2.1 to 3.1 billion Birr when car imports go back to normal over time, officials say.

After a reflection from a couple of MPs, the parliamentarians agreed to refer the bill to the Standing Committee on Planning, Budget, and Finance for further discussions.

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