The new investment incentive directive gives no tax exemption for education, training, printing industry and health services investments while on the contrary, it has given tax relief to alcohol related investments.
In its 8th ordinary summit, the Council of Ministers approved the new directive for investment incentives. The bill gives the Ministry of Finance (MoF) power to decide on incentive packages which was the mandate of the investment board.
The purpose of revising the incentive is said to encourage investors in accordance with the new investment proclamation approved in January 2020.
The directive authorized MoF to grant tax incentives to investments eligible under the regulation which entitles them to tax or give duty relief; and monitor on a regular basis the performance of each regulatory institution with respect to ensuring that tax incentives are used for designated purposes.
On the old incentive directive more than seven governmental offices had the power to decide; including the National Bank, main Department of Immigration and National Affairs, Ministry of Trade and Industry, Ministry of Foreign Affairs, Ethiopian Customs Commission, Ethiopian Investment Commission, Industrial Park Development Corporation, and regional administration on the incentive package under the Ethiopian investment board chaired by the Prime Minister on the 2012 incentive regulation.
Under the 2012 regulation, the investment board had been given authority to forward recommendations for approval to the Council of Ministers on incentive related amendments including granting new or additional incentives than what is provided under the regulation.
As experts suggest, the change to authorize MoF to decide on the package may create confusion since most of the investment related works are done by the Ethiopian Investment Commission, Ministry of Mines, Regional Governments and Addis Ababa and Dire Dawa City administrations Investment Organs, Ministry of Trade and Regional Integration, Ministry of Revenue and other Institutions who are mandated to regulate the implementation of tax incentives.
The new directive offers a comprehensive set of incentives on income tax and duty incentives granted to encourage investment in sectors eligible for incentives. Particularly for priority sectors, such as: Customs duty payment exemption on capital goods and construction materials, exporting investors located within industrial parks and industrial park developers.
Textile and Textile Products Industry, Leather and Leather Products Industry, Food Industry, Chemical and Chemical Products Industry are also areas which have obtained tax relief.
Under the beverage industry, manufacture of alcoholic beverages has got exemption from income tax for 1 to 2 years based on the investment area while manufacture of wines has got an exemption from income tax for 3 to 4 years. Likewise, manufacture of beer and/or beer malt has got 2 or 3 years of exemption.
Also according to the draft, in the health sector investment, only provision of tertiary specialized hospital service could have exemption from income tax for 2 year while exemption from income tax for 3 years is to be determined by a Directive of the Ministry, while new investments on provision of hospital service, provision of diagnostic service, provision of clinical service has no tax exemptions.
However the bill doesn’t give tax or duty exemption for investments such as hotel and tourism sectors, construction contracting and printing industry making it similar to the old directive. This is inclusive of information technology service and other services rendered using information technology as an enabler.