The Ministry of Finance is changing rules applying to what is known as excise tax.
The Ministry is amending a proclamation that was originally introduced in 2002 and amended in 2008. It allows the Ministry of Revenue (MoR) to approve a license for companies engaged in business activity which would be expected to pay excise tax. At first it was unclear which companies would be subject to excise tax or commonly known as ‘sin’ taxes.
Dawit Tadesse, Managing Partner of Lead Plus Management Consultancy and Training Center and Assistant Professor at AAU said the excise tax is a major source of revenue for the government. “The government sees this as a big revenue source,” Dawit who was critical of the previous excise tax proclamation, said.
Experts explained excise tax makes up about 20 percent of total tax collection. The new proclamation is expected to improve the tax collection process.
Under the new rule the final manufacturer or producer would be exempted from paying taxes on raw materials that were paid when the raw material was purchased. However, the exemption or excise tax deduction does not include alcohol, tobacco and sugar products.
Dawit recalled that the former law only allowed textile and garment manufacturing sectors to get a refund on the excise tax levied on raw materials. He said that even though the current amendment allows producers to get a reduction of excise tax if they import or buy local raw materials it does not include all sectors. “Excise tax is one of the major sources of income for the government due to that I don’t expect all sectors to get the reduction,” he added, it might include some manufacturing industries like textiles and garments.
Experts said that leaders of some industries have asked the government to allow the excise tax refund on raw material with the goal of improving competitiveness in the export market.
Dawit said an argument can be made that excise tax is a form of double taxation.
One of the new things that the draft proclamation added is revising the rate based on the market condition. Articles 10 states that the ministry shall adjust the tax ratio every two years and take inflation into account.
Previously, excise tax ranging from 30 to 100 percent was applied to 19 categories of products.
The new proclamation gives the ministry the power to identify what business is subject to excise tax. It said the ministry will approve those who want to engage in the business that excise tax will be calculated, which is new. The draft has stated several criteria where they can prevent an entity from engaging in excise tax related businesses.
Sugary drinks, alcohol, tobacco, salt, petroleum, perfumes, textile, types of adornment like gold or silver, TVs and video cameras, some types of cars, carpets, asbestos, watches, and dolls are some of the products subject to excise tax.
The draft amendment of the proclamation is being developed by the Ministry of Finance, while Ministry of revenue is responsible for implementation and issuing the directive.