Addis Abeba – Officials and experts from the Ministry of Finance have initiated public consultations on the draft regulation designed to implement the recently approved Value Added Tax (VAT) proclamation.
The discussion, held on 20 August, 2024, was led by Tewodage Mohammed, head of legal affairs at the Ministry of Finance, who emphasized that the forum aimed to involve the business community in shaping the final regulation and refining its provisions.
This marks the second time a public discussion has been conducted on the draft VAT regulation.
A similar discussion was held three weeks ago with representatives from tax collection offices at both regional and municipal levels.
During the recent gathering, Washiune Abate, a tax advisor at the Ministry, disclosed that the threshold for businesses subject to VAT under the previous law, which stood at one million birr in annual sales, has been raised to two million birr in the new draft regulation.
Washiune also elaborated on various changes proposed in the draft, covering aspects such as registration, suspension, cancellation, and the regulation of specific sectors including transportation, education, and finance.
According to the draft regulation, essential food items like grain and cereals—teff, maize, and corn—as well as staple foods such as injera and bread, will remain exempt from VAT.
Agricultural inputs, including fertilizers, pest control products, and improved seeds, are also excluded.
Additionally, items such as malaria nets, condoms, and electric vehicles are exempt under the new draft regulation.
This public discussion came two months after the House of Peoples’ Representatives approved the amended VAT proclamation, initially introduced in 2002.
The amendment seeks to broaden VAT’s scope by including a wider range of goods and services, sparking debate during a public consultation organized by Parliament on 18 June, 2024.
One of the more contentious issues has been the inclusion of transportation services provided by vehicles with fewer than eight passenger seats, as well as those offered by taxi-hailing platforms, under the VAT regime. However, the law specifically excludes three-wheeled Bajaj vehicles from VAT obligations.
The amended proclamation imposes VAT obligations on certain digital financial services offered by fintech companies. Nevertheless, transactions conducted through platforms such as Telebirr and M-PESA will remain exempt from VAT.
The newly endorsed VAT law also imposes a 15% VAT on utilities, including electricity and water consumption.
Participants in the June consultation highlighted a perceived contradiction between this inclusion and the existing legal exemptions for basic necessities.
One attendee argued that VAT is ultimately a “pass-through tax,” where businesses pass the tax burden onto consumers, potentially exacerbating inflation.
In response, a Ministry of Finance expert underscored the government’s commitment to promoting mass transit, explaining that those who use taxi-hailing services are generally more financially capable of bearing the VAT cost, whereas mass transit users are typically less affluent.
Additionally, experts from the Ministry emphasized plans to exempt a baseline amount of electricity and water consumption, sufficient to meet the needs of an average household.
Officials stressed that the VAT amendment was necessary to address discrepancies between actual and potential tax revenue.
The government aims to collect nearly 100 billion birr in VAT during the 2024/25 fiscal year, accounting for approximately 20% of total tax revenue.
To finance the nearly one trillion birr budget for the 2024/25 fiscal year, the government is also planning to introduce additional tax categories and expand the tax base.
These plans include amendments to the existing excise tax law, as well as the introduction of new taxes, such as property taxes and green levies.
Following the public consultations, officials from the Ministry indicated that the draft regulation on VAT will be revised to incorporate the feedback received before being presented to the Council of Ministers for final approval. AS
