Ethiopia drafts bill to amend excise tax law on alcoholic and soft beverages

ETHIOPIA – Ethiopia’s Ministry of Finance has presented a bill to the Council of Ministers to amend the nation’s excise tax law in an effort to standardise taxation of alcoholic products, soft beverages and other luxury goods.

The new bill, which has been sent to the Council of Ministers for deliberation, will tax goods such as soft drinks based on the selling price to suppliers, albeit at different rates, according to the draft.

Thus, the bill levies excise taxes on the goods before costs related to the value-added tax (VAT), the cost of excise stamps and the cost of returnable containers are added.

For alcohol products, such as wine and beer, the Ministry designed a new formula for valuing the excise tax.

The bill will also exempt salt, educational toys, laundry, dishwashing machine for domestic use and toilette waters from the excise tax regime. The Ministry also plans to introduce excise taxes to plastic bags.

According to the tax policy director of the Finance Ministry Mulay Weldu, “The current collection system is far more complex to administer and liable to undervaluation.”

With the proposed scheme Mulay added that it will prevent under-invoicing by eliminating the need for an arduous process and tax base computation.

The initial draft presented by the Ministry to manufacturers for discussion levies 60pc tax on the selling price of the goods, reports Addis Fortune.

This drastic change reduces the company’s revenues, levels of employment generated by the sector and the sectoral contribution to overall GDP, according to members of the Ethiopian Brewers Association.

Following the discussion, the Ethiopian Brewers Association sent a report to the Finance Ministry arguing that the initial draft raises the retail price of a bottle of beer by 300pc to an average price of 60 Br.

The report highlighted Kenya’s experience following the government’s decision to raise excise tax on beer by 43pc, which did lead to a positive effect on government revenue but led to the loss of billions of Kenyan shillings for value chain players.

Manufacturers instead proposed excise taxation based on the volume of production or an incremental rise in the tax rate to 40pc over a period of four years.

The rate was finally structured as the cost of production minus 15pc multiplied by an ad valorem rate of 40pc or a minimum specific excise of 15 Br for every litre, whichever is higher.

The introduction of the new bill is part of the economic policy reorientation to the Homegrown Economic Reform Agenda unveiled by Prime Minister Abiy Ahmed’s (PhD) administration in September.

Within this framework, the government plans to take a series of measures to shift the economic landscape of Ethiopia, including reforming tax laws to boost domestic mobilisation.

The amendment, expected to be ratified by January 2020 was originally introduced in 2002 and has since been amended twice.

Recent updated on Kenya’s taxation regime indicate that the Kenya Revenue Authority (KRA) raised the excise duty of bottled watter by Sh5 per litre and introduced the Excisable Goods Management System (EGMS) stamp.

EGMS stamps were introduce to enhance compliance and boost revenue collection by approximately Ksh 4 billion and also enable fair competition amongst traders in the sector by fighting against illicit trade of substandard products.

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