TAX UPDATES Revisions on excise tax The New Proclamation issued on February 13, 2020, proposes to impose the tax on goods that are believed to be luxurious, hazardous to health, causes social problems as well as on basic goods which are demand inelastic. Moreover, it replaces the production cost-based assessment of the tax to the ex-factory price method of assessment. This would help to relieve the problem of unpredictability on the amount of tax the taxpayers are liable to pay. Thirdly, the new law aims to address the challenges in the collection of excise tax that emanated from the inadequacies of the Repealed Proclamation. |
Scope of Application: Excise tax will be applicable on 19 groups of items and 378 goods. In terms of coverage, excise tax is broadened to include motorcycles, plastic bags, wigs and human hair, fireworks, and artificial flowers, which previously were not included in the tax net. On the other hand, some items such as laundry and dish washing machines, clocks and watches that were previously subject to excise tax were removed. Requirement of a license The new Proclamation introduces a new requirement that was not previously mandatory. Eligible taxpayers are required to be licensed by the tax authority before engaging in the importation and production of goods or rendering of services. Eligibility License requirement is applicable to those who manufacture excisable goods in Ethiopia and import excisable goods. The Ministry of Finance may further impose a requirement of license on any other activity. |
Exemption: Under the Repealed Proclamation, goods that are not included on the Schedule of taxable goods were deemed to have been exempted from the payment of excise tax. Under the New Proclamation, there are detailed rules on exemptions. The list of exempt goods is exhaustively provided under Schedule II. Goods that fulfill the requirements of Schedule II are exempted. Among others, excisable goods exported under custom control and exports of excisable service, excisable goods destroyed by the manufacturer at the presence of the officials of the Authority, and supply of goods to entities that are exempt from excise tax by law are exempted from payment of excise tax. In addition to this, the MoF may exempt goods and services considering economic, social and administrative reasons. The excise tax is not applicable when excisable goods are destroyed or lost due to accident or other cause in the course of removal of goods from the factory by the manufacturer or before removal, or while the goods are onboard in aircraft or vessel in their way to Ethiopia. This exemption would not apply if the taxpayer is compensated for the damage and such compensation includes excise tax. |
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Base of computation [the tax base] The base of computation of excise tax under the Repealed Proclamation was based on goods produced locally and goods imported. The tax would be imposed on locally produced goods based on the cost of production. On the imported goods, the tax was imposed on the cost, insurance and freight (CIF) and the custom duty. Under the New Proclamation, the value on which the excise tax to be imposed will be determined based on (i) excisable value of goods or service or (ii) the quantity of goods. Refunds Under the Repealed Proclamation, excise tax paid on import of inputs that are used to produce textile and textile products and vehicles assembly locally are deductible from excise tax. The New Proclamation expands this privilege to other sectors specifically to goods imported or manufactured that have been used as raw materials in the manufacture of finished goods. The excise tax paid on the raw materials will be set off against the excise tax payable on the final goods. This relief is not applicable to alcohol, tobacco and sugar products. The new Proclamation permits the refund of excise tax paid by the taxpayer when the goods have been damaged or stolen during transportation to Ethiopia or while subject to excise control, when the buyer returned the goods based on a contract of sale, or when the purchaser unable to repay due to insolvency. Penalties The manufacturing and importation of excisable products without having the license or manufacture of goods at a place not specified on the license entails an administrative penalty. The penalty will be to pay double of the excise tax that would have been payable if the person were licensed. The New Proclamation further provides various criminal liabilities for violation of the excise tax law. This email address is being protected from spambots. You need JavaScript enabled to view it. This email address is being protected from spambots. You need JavaScript enabled to view it. This email address is being protected from spambots. You need JavaScript enabled to view it. |
Getu Jemaneh Partner | Tax and Business Support Services Ethio–China Friendship Ave Mina Building 4th & 5th Floor Tel: +251 115 58 51 47 | Mobile: +251 930034377 Fax: +251 115 52 83 84 This email address is being protected from spambots. You need JavaScript enabled to view it. |
Mamo Abdi Senior Manager |Tax & BSS Ethio–China Friendship Ave Mina Building 5th Floor Tel: +251 115 58 51 47 | Mobile: +251 932 518811 Fax: +251 115 52 83 84 This email address is being protected from spambots. You need JavaScript enabled to view it. |