Sin tax on beer spikes 45%

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After banning beer advertisements the government plans to take another gulp out of the beer industry. In the new fiscal year, which starts July 7, hopes are that a 45.4 percent excise tax increase will amass 4.246 billion birr in revenue.
This is a growth of 1.3 billion birr from the 2018/19 fiscal year when the government planned to collect 2.92 billion birr from beer excise taxes, which is also known as a sin tax levied mostly on luxury goods and items dangerous to people’s health.
Experts expect this to case beer prices to increase.
The government is working to expand the tax base and improve the tax regime.One of the taxes under amendment is the excise tax that has been discussed in the past couple of weeks with stakeholders. Capital was able to look at the draft document. It appears that taxes on some goods will change and that new products will become eligible for the excise tax but details are not mentioned. Previously an excise tax ranging from 30 to 100 percent was applied to 19 categories of products with 10 bands of tax rates ranging from 10 to 100 percent.
The government has been encouraged by international partners like the World Bank and International Monetary Fund improve tax collection from the current 10 percent of the GDP at least up to peer countries in the region. In the Sub Sahara region, the average tax to GDP ratio is about 18 percent.
The government’s goal is that at the end of the GTP in 2019/20 budget year tax collection would increase to 17 percent of the GDP. It has also undertaken several reforms in the past few months and others are coming soon. The excise tax, which is expected to contribute about 9 percent of the total tax collection this year, is one of the amended taxes.
For the current year the government plans to collect 10,366.3 billion birr and 8,738.1 billion birr from imported goods and locally produced products respectively. The sum of two is about nine percent of the total targeted tax collection for the year, which is about 211 billion birr.
For the 2019/20 budget year the government has targeted to collect 9.64 billion birr in excise tax from locally manufactured goods and 9.3 billion birr from imported items that is mainly collected from automobiles.
The targeted excise tax collection from automobiles is almost five billion birr and followed by textile by close to 2 billion birr.
Recently Eyob Tekalegn, State Minister of Finance, said that the revision of excise tax law would enable the government to collect an additional 20 to 30 billion birr annually.
The Ministry of Finance 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, commonly known as ‘sin’ taxes.
Excise taxation, which is one of the oldest indirect taxes imposed in the country, was first introduced in 1931, before the Italian occupation, on excisable products such as alcoholic beverages, cigarettes, incense, carpets and clothes.
According to experts, the amended draft document indicated that ad valorem tax would be considered and manufacturing companies that paid tax on the raw material would be exempt and the calculation would be made on sales instead of production. However, the exemption or excise tax deduction does not include alcohol, tobacco and sugar products.
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.
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.