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.
Sin tax on beer spikes 45%
HST celebrates its 15th anniversary
HST, the well-known local consultancy firm with international competency and that provides several supports for the private and public sector celebrates its 15th year anniversary.
For the past years HST was present on major business deals in the country as a consulting firm and support several huge companies including international businesses on their activity here.
Over the years, HST partners also played a leading role in strengthening the accounting and finance profession in the country. For instance about a decade ago the firm’s senior partners led one of the national technical committees on drafting a financial report law and design appropriate institutional structure for adoption of International Financial Reporting and Auditing Standards (IFRS).
“On the basis of the committee’s recommendation in 2014 the Ethiopian government enacted a financial reporting law and established the Accounting and Audit Board of Ethiopia to regulate financial reporting and corporate governance in the country,” Solomon Gizaw, one of the founding partners and current Managing Partner and leader of the Consulting and Training functions, said at the anniversary ceremony, which was held on Friday June 14 at the Hilton Hotel.
In early May 2019 HST’s two partners, Solomon and Zekrie Nigatu, Director of Corporate Finance and Executive Development, has also volunteered to serve as member of a National Public Finance Management Advisory Council chaired by Eyob Tekalign State Minister of Finance with the core objective of improving accountability in the management of public finances in Ethiopia.
HST was formed by the merger of three firms; Haile Leul Tamiru and Co, Solomon Gizaw and Co and Tekeste Gebru and Co.
“Although the firms had 12 years of combined experience, HST (represents the first initials of the name of the founder) had a humble beginning. For the first 7 to 8 years the firm supported many clients in many sectors of the Ethiopian economy with audit and tax services to improve their compliance system,” Solomon said.
He said that over the last seven years, HST expanded its audit and tax services to include management consulting services in the areas of corporate finance, strategy, human capital and corporate trainings which have contributions to its clients’ core area of operations.
One of the qualities of the company is that it follows a competence based talent management system in attracting, developing, rewarding and retaining its employees and spends millions of birr every year for long term professional training and development.
Solomon said that the firm currently has 12 partners and directors and is targeting to increase the partners and directors to 25 with 500 multi-disciplinary professional staff from the current 135 and achieve the firm’s set revenue target by 2030.
“To realize this vision the firm has already formed HST-Agriculture that is a sector based consulting business unit that focuses on agriculture capacity building, project management and market access to agriculture products,” he said. The service for the stated sub sector will commence service in September later this year.
Over 30 houses in Addis to be listed as historical heritages
The Addis Ababa Cultural and Tourism Bureau which is assessing the city to register historical houses, so far registered over 30 old houses which are expected to be listed as historical heritages of the city.
The houses which were used by government officials during Haileselassie and Meneilk II time, heroes and notable personalities in various field are part of the heritages that have to be registered yet.
The bureau so far registered 440 old houses in the heritage list in Addis Ababa.
Mekbeb Gerbermariam, Heritage expert at the bureau told capital that the aim of the registration is to save the place from demolition and to preserve historical places.
“Addis Ababa is changing every time, construction and demolition are part of the city’s day to day activity. Sadly some historical house like the Ras Abebe Aregay house and others were demolished due to negligence,’’ the expert said.
“So now to save the houses from further damage or demolition we assign people to register the old houses and we will soon list tem in our book of heritages,’’ he added.
“Historic sites are in private hands and owners can do whatever they like with them, we must do something serious to stop it and to do that we must have a powerful conservation laws.’’
Mekbeb told Capital that Buffet de la Gare restaurant will not be demolished and it is not part of the Eagle Hills project, a private Abu Dhabi-based property developer project.
“Rumors were spreading in the city that the old restaurant will be demolished soon, it is false and we told the concerned body that the house is listed in the heritage sites and it will not be demolished,’’ Mekbeb added.
The Eagle Hills project which is located around the Ethio-Djibouti Railway will have 4,000 residences once complete, and will also have commercial, hospitality, retail and leisure facilities set around a large park, with a railway line running around its northern edge.
Budget focuses on stopping wheat dependency, tax increases
Expected amendments to VAT, excise tax and investment incentives are targeted to boost the government’s revenue to allocate more budget in the coming fiscal year. The federal budget allocates a significant amount of money for the irrigation scheme that would be managed by trained youth. The birr is estimated to be devaluated by more than six percent in the coming year.
On Tuesday June 12 Ministry of Finance tabled the 2019/20 fiscal year draft budget, amounting to 386.9 billion birr. This shows an increase of 1.6 percent compared with the 2018/19 budget year that will end on July 7.
The government wants to earn 224.8 billion birr from taxes. This is an increase of 6.5 percent or 211 billion birr.
In his budget speech Ahmed Shide, Ministry of Finance, stated that the targeted budget collection for the coming year would have a difference of close to 32 percent compared with the actual tax collection estimation for the current year.
He said that based on the current condition the tax collection for the current year would not pass 170 billion birr even though the projection was 211 billion.
According to the information Capital obtained from Ministry of Revenue the tax collection for the 2017/18 was 149 billion birr, while the target was close to 200 billion. Due to that the current year’s expected actual collection would have an increase of about 20 billion birr than the preceding budget year. However the Ministry of Revenue information stated that the past budget year tax collection is 149 billion birr Ahmed stated that the tax collection for the 2017/18 fiscal year was 235 billion birr, which is confusing for experts following the budget.
In his speech at the parliament he said that the expected amendments are highly anticipated by the government to improve its revenue for the year. In the 2019/20, which is the end of the second Growth and Transformation Plan (GTP II), the government planned to make the tax collection 17 percent of the GDP, while the last year performance indicated that the collection is about 10 percent, which was even reduced from about 13 percent about two years ago.
Priority
The coming year budget has also given priority for irrigation projects that would be managed by farmers and organized youth. According the draft budget 2.8 billion birr has allocated for trained youth irrigation projects plus one billion birr for the implementation of the scheme.
Totally 4.6 billion birr has allocated for irrigation sector including half a billion birr that will be allocated for farmers who manage irrigation jointly on their farm lands.
The government has said they are interested in cutting wheat imports through ample production here using the irrigation scheme. The government has target to stop the wheat import that consume over USD 600 million every year within three years period.
Ahmed said import substation like produce wheat in the country is the area that the country will follow for the year.
Like previously, education and roads have the most attention in the federal budget. In relation to the growing number of higher education institutions the budget education sector mainly for recurrent expenses has been growing every year. For the coming year the education sector will secure 50.5 billion birr or 21 percent of the total budget that follows by road sector that manages by Ethiopian Roads Authority (ERA) has secured 19.4 percent of the total budget that allocated for federal government. For the year ERA will use 46.7 billion birr of which 38.2 billion birr will cover by public coffer.
The loan payment amount has show change every year and takes as one of the top budget positions. For the coming year the loan sector has stood at the third position after education and roads. From the total federal budget the debt settlement has got 10.5 percent or 25.2 billion birr. For the 2018/19 budget year the government has been allocated 22.5 billion birr and it was about 17 billion birr for 2017/18 budget year.
The top three are followed by water, which may also include the high level irrigation project, with 7.3 percent share of the total share, military with 6 percent, agriculture 6 percent, health 5 percent, and urban development 4 percent.
Devaluation
In his speech the Minister said that based on the forecast of National Bank of Ethiopia, the central bank, One USD 1 will be exchanged at 29.74 birr. The depreciation rate will stand at six percent of the current rate. In the beginning of October 2017 the government devalued the birr by 15 percent from other major hard currencies to 26.11 birr per a dollar and it is now reached about 28.05 birr.
Officials of the central bank and relevant government offices stated the devaluation is being done to expand the country’s hard currency earnings. They argued that devaluation would not have significant effect on the market price. However since the devaluation occurred last budget year inflation has returned back to double digit levels and it has continued duing the current year.
In his budget speech Ahmed said that besides political instability in the country in the 2017/18 budget year the currency devaluation has contributed for the inflation. In the 2016/17 fiscal year the average overall inflation rate has been 7.2 percent that hiked to 13.1 percent in the past budget year. He also claimed that the growth of the money supply (M2) by 29.2 percent in to the market has also contributed for the inflation.
He also stated that the 2017 devaluation could not improve the export earnings of the country. “Even though the government has taken policy administrative measures including the devaluation, the export sector did not show any encouragement,” Ahmed told the law makers at the parliament.
Proposed budget and source
For the coming year the government has proposed 386.9 billion birr for the 2019/20 budget year. The amount is an increase of 11.5 percent compared with the original346.9 billion birr budget for the 2018/19 fiscal year, while in the middle of the current budget year the government has approved 33.9 billion birr in a supplementary budget that boosted the budget to 380.9 billion birr. Including the supplementary budget for the current year has increased by only 1.6 percent.
From the stated proposed budget 130.7 billion birr (34 percent) is allocated for capital budget, 109.5 billion (28 percent) for recurrent, 140.7 billion (36 percent) for regional administrations support and six billion birr (2 percent) for Sustainable Development Goals.
The government has targeted to earn 224.8 billion birr from tax, 28.2 billion birr none tax sources and 18 billion birr from Protecting Basic Service Program (the World Bank, African Development Bank and European Union), 19 billion birr project grants, and the budget deficit is 97 billion birr.
Ahmed argued that the deficit is three percent of the GDP and the expected borrowing from local source, which is also known as money print or fresh money on the market is 1.8 percent of the GDP.
He stated that to fill the budget gap the government will borrow 56.8 billion birr local sources (mostly central bank), and the balance will be also secured from Basic Service loan that is external and project loans. The draft document indicated close to 20 billion birr loan will be secured from Protecting Basic Service Program, and more than 20 billion birr for project loan.
In the bilateral loan or state loan China has continued by providing huge finance for the country. For the year via the state itself and EXIM Bank China will provide 4.2 billion birr loan and followed by the South Korean Korea International Cooperation Agency that will facilitate an over one billion birr loan.
Regarding bilateral grant the UK and US has stood at the top with the support of 1.9 and 1.7 billion birr respectively.
Ahmed estimated that the current year’s economic growth would be at 8.8 percent and 9.2 percent for the coming year.
