Draft outlines new engine capacity tax rates to influence import

A revised excise tax draft has been tabled to parliament seeking to increase tax on vehicles below 1300cc while conversely decreasing the same for vehicles above 1300cc. Additionally the tabled draft is said to impose excise tax on Telecommunication service.
The House of Representatives on Tuesday, January 24, 2022 in its ninth regular meeting discussed the bill submitted by the Council of Ministers to amend the Excise Tax Act, and following the discussion, the bill has been sent to the Standing Committee on Planning, Budget and Finance Affairs for a detailed review.
Classifications of vehicles currently lay in four groups for the purpose of tax payment. In the existing excise tax proclamation classification was fixed as, below to 1300 cc, 1301-1800 cc, and 1801-3000cc and above 3000cc and have 5 percent, 60 percent and 100 percent excise tax respectively.
The new draft now classifies the same as 1500 cc, 1501-2500 cc, 2501-3000 cc and above 3000cc. The draft suggested 10 percent, 20 percent, 30 percent and 60 percent excise tax respectively. In the existing classification vehicles less than 1300cc has only 5percent excise tax which is now included in the first classification below 1500cc which now suggests for a 10 percent excise tax.
The document stated that Ethiopia’s excise tax on vehicles is the highest when compared with neighboring countries ranging from 66 percent to 374 percent depending on the type of the vehicles where in Kenya it is 96 percent, while Rwanda’s is 71.3 percent and Ghana at 40 percent.
As stated, the reduction is based on the amount of duty and tax on new vehicles depending on the type of the vehicle.
Excise tax proclamation no 1186/2020 was enforced to implementation in February 2020.As the new draft indicated, the proclamation has been successful in expanding tax bases change in the tax administration system and decreases the importation of used vehicles that have significant damage to the environment. Also as indicated, the changes made on the proclamation have increased government revenue from excise tax by 55 percent.
As indicated on the draft a detailed study has been done regarding the significance of the excise tax proclamation and the effect it has resulted. Some tariffs have been noted to put pressure on the competitiveness of domestic industries requiring much needed re-amendment to adjust the excessive tariffs imposed on some products and impose tax on some services.
Also the draft imposes 5 percent excise tax on telecommunication service if the new law is approved by parliament. Telecommunication is one of the activities where the government can collect revenue without putting pressure on economic activities, the draft declared.
Countries, such as Kenya and Tanzania, have also implemented similar taxes on airtime and data. For instance Kenya charges 10 percent excise tax according to the draft. Currently, Value-added tax (VAT), which is assessed at 15% in Ethiopia, is already paid by customers of telecommunications services.
The legislation also exempts video cameras and televisions from excise tax which is 4 percent and 10 percent on the existing proclamation.
The draft also suggests revising the levy of excise duty on products on those that have overlapping excise duty including tobacco, sugar products and pure alcohol. For sugar products from 20 percent to 10 percent and for pure alcohol reduce from 60 percent to 10 percent. Due to the high taxes paid on the inputs used for the production of the products and final products, pressure is most often created on the competitiveness, the draft highlights.