A draft proclamation to replace the two-decade-old legislation maintains the 15 percent VAT rate on taxable goods and services. The government is considering tax reform to broaden the tax base and increase tax revenue.
The draft proclamation states that the VAT on taxable goods and services and imports will be 15 percent unless they are zero-rated. Since the implementation of VAT in Ethiopia’s tax system 20 years ago, this has been the percentile that has been in use.
The tax base, on the other hand, is expanded as the government adds new categories of businesses to the list of those that pay VAT. E-commerce, fees on public services, private transportation, and other sectors are added to the VAT tax base.
Tadesse Lencho (PhD), a law expert who teaches tax and bankruptcy law at Addis Ababa University and is also a managing partner at TBeST Law LLP, was one of the lawyers who gave their comments to the Ministry during the drafting process of the draft proclamation, back in August 2022.
“These rapidly expanding markets were included in the tax base to increase government revenue. The government gets more money as the base expands,” Tadesse said.
The government expects government revenues to rise 37 percent to 439 billion birr this fiscal year. Income tax accounts for 28 percent, as is customary. The value-added tax accounts for 25 percent. The customs duties make up the difference.
Some countries don’t charge VAT. Ethiopia collects higher rates than some of Africa’s largest economies. South Africa’s VAT is 14 percent and Nigeria’s is 7.5 percent. Egypt collects 20 percent VAT, and Kenya collects 16 percent.
Businesses with two million birr in taxable supplies must register for VAT in Ethiopia. The repealed proclamation set this at half a million birr, but a subsequent amendment raised it to a million.
Last Thursday, the Ministry of Finance released a draft proclamation for public comment until March 3, 2023.
The document exempts medical services, prescribed medicines, public transport, medical equipment, financial services, religious services, educational courses, and agricultural products from VAT.
The VAT does not apply to the importation of a number of different products.
“The government needs more revenue,” Tadesse said, wondering if the rate would change before the proclamation was ratified.
