In a bid to raise its tax revenue, the Ethiopian Government has tabled a draft excise tax proclamation to the House of People’s Representatives (HPR) that would see a sharp rise in taxation of second-hand imported vehicles, which could go as high as 500 percent.
The draft bill, tabled on Thursday, generally targets products which are truly luxury in their nature, items that could pose danger to the public health and safety, goods that cause social problems, outputs which are said to be essential and their market demand is not sensitive to change in market price.
On top of that, the draft also focuses on excisable manufacturing goods and proposes to change the base of excise tax calculation which was production cost to factory gate prices, to avoid complication arising from estimating cost of production for many manufacturing plants.
According to the draft bill, the excise proclamation has remained inefficient piece of legislation undermining the tax collection ability of the government.
While presenting the draft, Deputy Whip, Chala Lemi told the House that the proposed bill will help the government, to take control of illegal trade and to collect tax properly. He added that the new law proposes an increase on items that are considered to be hazardous to the health pf the public and cause social problems.
Elaborating further, he noted that the government believes second-hand cars to be one of the major reasons for increasing road accidents in the country.
Coming a day after the Minister of Transport, Dagmawit Moges, told members of a standing committee that her ministry is working on discouraging the import of used vehicles through a tax increase, the latest draft bill proposes an introduction of excise tax on imported vehicles which could go as high as a 500 percent. The bill specifies that vehicles that are 1800 cubic centimeters (CC) and above and used for over seven years.
Accordingly, buyers will be subjected to pay a 100 percent and 200 percent excise tax for a four year old and a seven year old car, respectively.
Meanwhile, the bill includes the provision that levies a 400 percent excise tax for a seven-year-old car with a seating capacity of 16 passengers, while it also imposes a 460 percent excise tax on any vehicle with cylinder capacity between 1300cc and 1800 cc and used over seven years.
Apart from cars, commodities covered by the proposed law includes fats and oil (up to 50 percent), sugar and sugar confectionery (up to 30 percent), soft-drink powders (25 percent), non-alcoholic beverages (20 percent), salt (25 percent), mineral fuel and oil and their products (30 percent), Rubber tires (5 percent), perfumes and cosmetics (100 percent), plastic shopping bags (40 birr/kg), human hairs and wigs (40 percent), Carpets (8 percent), TV and Camera (10 percent) and more.
Based on the bill, a beer exclusively produced from barley, grown and malted in Ethiopia, will be subjected to a 35 percent excise tax, while beer brands having the local raw material content of, excluding water, at least 75% by weight of its constituents will be subjected to 30 percent excise tax.
In addition, it proposes a 40 percent excise tax for all types of wines including fortified wines, fermented wines and other types of alcoholic beverages obtained by fermentation of fruits. Drinks with an 80 percent alcoholic content could be subjected to an 80 percent excise tax.
Tobacco and tobacco products, on the other hand, will be a subject of up to 30 percent tax (leaf 20 percent, cigarettes per pack 30 percent, as well as 30 percent/kg for cigars and others.
In addition to listing out goods to be taxed, it also lists out items and services that are exempted from the new draft. These include excisable goods such as aircraft food, being goods for use or consumption by passengers or crew of aircraft while on board and while the aircraft is in international airspace.
Similarly, goods imported into Ethiopia or purchased in Ethiopia by a diplomatic or consular mission, or by a diplomat or a member of the diplomat or consul’s family forming part of the diplomat or consul’s household in Ethiopia; is exempt from the latest bill to the extent provided for under the Privileges and Immunities Regulations.
Furthermore, the draft bill states that excisable goods imported into Ethiopia or purchased in Ethiopia by a foreign government, international organization, or aid agency to the extent provided for under an international agreement or the Privileges and Immunities Regulations are exempted. Furthermore, goods imported or purchased locally by the Ethiopian Red Cross Society for official use in the provision of relief services in Ethiopia, are also among the lists that are exempted from excise tax.
Regarding the excisable services that would be exempt from excise duty includes services supplied in Ethiopia to a diplomatic or consular mission or to a diplomat or consul, or a member of the diplomat or consul’s family forming part of the diplomat or consul’s household in Ethiopia are exempted to the extent provided. Furthermore, excisable services supplied in Ethiopia to a foreign government, international organization, or aid agency to the extent provided for under an international agreement or the Privileges and Immunities Regulations are on exempt list.
After holding brief discussions, members of parliament have directed the bill to the respective standing committee for further discussions. They said that the inclusion of some items such as household items should be properly reviewed by the standing committee.