Some businesses owners are concerned that the expected excise tax revision, which has not yet been disclosed, will lead to economic slowdown and confusion.
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.
Businesses that Capital talked believe that the increase and new products to be taxed should be disclosed by the government as soon as possible.
They said that the partly released draft document has given an opportunity for speculation, hearsay and confusion in the business world.
Since the information about the amendment came some businesses are waiting to see the final document and details of the categories before making decisions.
“For instance we prefer to keep still before giving any decision for the coming budget year,” a leader of one of the prominent manufacturing industry actors, who asked for anonymity told Capital. He said that the government has to clear the situation regarding the proclamation. “We, including industries in similar sectors, are concerned about the percentage increase in the excise tax. We must have a strategy for our future business, as a result the government has to release the full document and not hold the private sector in suspense,” another investor who also asked not to be named explained.
Experts said new businesses including FDIs prefer to see the upcoming amended law before making a decision about investing in the country.
There are rumours that the beer excise tax would be increased by 6 times from the current level. “Such kind of hearsay has affected the investment in the sector and others related to it,” they said.
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 import 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.
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 an 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.
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 a business in which 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.