New tax law winners and losers

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(Photo: Anteneh Aklilu)

New excise tax rates will reduce minimum taxes from 10 percent to five while the highest tax will be a whopping 500 percent.
The revised excise tax that will replace proclamation no. 307/2002 taxes new items, but reduces the rates of many others, tax rates for imported vehicles will double. Beer was expected to have a higher rate but surprisingly went down.
The new law to be voted on at parliament this week was highly anticipated by the general public and the business community because many feared the revised tax would affect their business activity while others expected the drop to boost their operation.
The draft table is divided by 19 items with 24 pages of details of goods and services. It dropped the minimum tax rate to 5 percent from the current 10 percent and the maximum to five-fold from the current 100 percent to 500 percent.
With the new rates, excise taxes for plastic tires, telephone services like voice, data and tests, and electric powered motorcycles stands at five percent.
The last time excise taxes were set it was 2002 and the minimum rate was 10 percent.
For instance, the rate related to products in the textile sector and garment industry has declined by 2 percent from the current 10. Experts stated that the excise tax rate should consider international competition since the country wants to expand the textile and garment sector, which is expected to create jobs.
Similarly, the sweet industry expected to bring in hard currency when the new sugar factories open has seen a significant decrease in the excise tax. According to the revised documents the tax rate for sugar products has dropped to 20 percent from the current 33.
Currently the government is in the process of privatizing the sugar sector and some factories will be transferred by this budget year.
A week ago, Eyob Tekalgn, State Minister of Finance, indicated that the sugar excise tax rate will be rearranged to make the sector competitive in the international market. “Our target is to export the product at a competitive price and to do that the rate will be revised,” he explained.
The excise tax reduction is also expected to increase the interest of investors, according some experts. But at the same time others have argued that the excise tax on sugar is unacceptable. They claimed that sugar is basic commodity, a necessary food item.
Bitew Alemu, General Manager of Ethio Sugar Manufacturing Share Company, which is one of the companies competing to take at least one factory through the privatization process, argued that the 20 percent is calculated from sales. “Currently, the 33 percent is calculated from production which deducts depreciation and other costs before calculating the excise tax,” Bitew told Capital.
Similarly, some other industries like soft drink and water bottlers have also complained about the tax revision that reduced soft drinks and non-alcohol beer to 25 percent from 30 percent and 15 percent for water bottlers, while the real tax settlement will increase.
According to experts the new excise tax calculation is based on sales instead of production.
The other unexpected revised rate is on beer.
In the current status the beer excise tax is 50 percent but that will be dropped to 40 percent or 11 birr per a liter in the revised document, and even the product is produced by the malt fully produced in the country the rate will be shrunk to 35 percent or 9 birr per a liter. The proclamation has also added that the beer that produced by 75 percent of its wait from local inputs except water the tax will stand at 30 percent or 8 birr.
Experts in the beer industry said that the revised rate is unexpected compared with the expectation. Previously, rumors said the beer excise tax would rise three fold from the current rate and brewers were upset. However the rate has reduced from 30 to 40 percent even though the current calculation would be calculated on sales, and that means the price beer may still go up a little.
The other alcoholic drink currently is 100 percent has been reduced to 80 percent. The excise tax rate for whisky has also increased to 80 percent from the current 50 percent.
All types of pure alcohol excise tax rate have dropped to 60 percent from the current 75 percent.
The cigarettes excise tax rate has revised to 30 percent plus five birr per packet that holds 20 cigarettes, while on the current rate the excise for cigarettes is 75 percent with cigar, cigarillos, pipe tobacco, snuff and other tobacco products.
On the revised rate other type of tobacco products except tobacco leaf and cigarettes that excise rate is 30 percent with 250 birr per kg.
The tax for television and video cameras, television broadcast receivers whether or not combined with gramophone, radio or sound receivers and reproducers will have a similar ten percent rate that is now mostly 40 percent and 10 percent for television broadcast receivers whether or not combined with gramophone, radio or sound receivers and reproducers.
The tax on salt has also reduced to 25 percent from the current 30 percent.
The revised rate on vehicles totally changed and appreciated the brand new and locally assembled products than used vehicles. The rate indicted that the three wheel vehicles that locally assembled or brand new would have 30 percent excise tax, otherwise based on their service year in other countries the tax rate is from 80 to 430 percent.
The vehicles from 1,000 cc 1,300 cc are also the same with the three wheel cars and the rate for used cars is from 110 to 460 percent based on their service year. The rate is similar with the current rate on1,300 cc cars for brand new or locally assembled cars except adding rates on the used vehicles.
For cars with 1,301 c.c up to 1,800 c.c the existed rates, 60 percent, while the rate on the used vehicles is similar with for up to 1,300 cc rates that is 110, 160, 260 and 460 percents for cars the used for two years, up to 4 year, up to 7 years and above 7 year respectively.
For vehicles above 1,800 cc the rate is similar with the past 100 percent for brand new locally assembled cars and 150 percent for cars used for two years, 200 used up to 4 year, 300 up to 7 years and 500 percent for above 7 years used cars.
The excise tax now means that plastic bags will be charged 40 birr per kg.
By a directive from the Ministry of Revenue the percentage will take into account inflation every year, which was not the case previously.