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The New Excise Tax Proclamation No. 1186/2012: A Compliance Overview

The House of Peoples Representatives has approved the infamous Excise Tax Proclamation (The Proclamation) last Thursday, February 13, 2020. Within hours from the approval of the proclamation, Ministry of Revenues have written a letter to manufacturers of excisable goods stating that the proclamation will be implemented starting from February 14, 2020, which in effect violates both the FDRE Constitution and Negarit Gazeta Establishment Proclamation. The proclamation has not yet been published in the Negarit Gazeta and there are notorious discrepancies between the Amharic and English versions. In addition, with no transition time given to the manufacturers, they are forced to prepare manual invoices, which separately shows the amount of excise tax payable in the transaction as the new law requires the amount of excise tax should be separately shown in the invoice.

Setting aside all these problems occurring due to the panic moves of the government, the Proclamation has introduced fundamental changes to the existing excise tax framework and the market has already felt the punch of these changes within few days of its implementation. In this brief overview, some of the major changes introduced to the Excise Tax Regime will be assessed.


1. Imposition of Excise Tax on Excisable Goods


In line with its fundamental purpose, the proclamation has imposed excise tax on excisable goods manufactured in Ethiopia by a licensed manufacturer and excisable goods imported into Ethiopia. Therefore, the manufacturer and importer of excisable goods are required to pay excise tax in this proclamation. Accordingly, the proclamation has listed the type of excisable goods exhaustively in its first schedule. Thus, the list of excisable goods under the first schedule of the proclamation is important to determine the excise tax obligations of taxpayers. As such, the proclamation has introduced new excisable goods. 


2. Introduction of a Comprehensive List of Exempted Goods


Unlike the previous excise tax law, the new excise tax proclamation has introduced a list of exempted items and transactions from the reach of the excise tax law regime. In addition, the law has provided circumstances on which a given excisable good will be exempted from payment of excise tax. Accordingly, the draft law provides the following goods exempted from excise tax;

  • Exempt goods which met conditions set out in the second schedule;
  • Excisable goods exported under custom control, including those stored in the approved warehouse;
  • excisable goods that the manufacturer has destroyed, with the prior written permission of the Authority, under the supervision of the officers of the Authority prior to their removal from the factory in which they were manufactured;
  • excisable goods that are supplied to entities that are exempt from excise tax by law;
  • denatured alcohol produced in a manner that it cannot be used for human consumption
  • excisable goods that have been lost or destroyed by accident or other unavoidable cause


3. Rate and Time of Payment


Under the proclamation, there is no uniform tax rate for all excisable goods. The first schedule of the proclamation has stipulated different excise tax rates for various excisable goods ranging from 5% to 500%. Introduction of new excise tax rates to the excisable goods is an area where the proclamation has made major changes. The other new introduction in the proclamation regarding tax is the mandate of the Ministry of Finance to adjust the inflation by changing the rate of excise tax by an amount not more than 10%. This will give the tax authority the power to increase or decrease the rate of the excise tax at least once in year without a need to go through a parliament approval.

Regarding time of payment, there are critical provisions, which shall be strictly complied by taxpayers. Accordingly, manufacturers of excisable goods in Ethiopia shall pay excise tax at the time of removal of the goods from the manufacturer’s factory. But if such goods are consumed in the factory then the time of consumption will be the time of tax liability. Based on this, the accumulated amount of excise tax by a licensed manufacturer in respect of excisable goods removed from the factory during a calendar month shall be paid not later than the thirtieth day of the next month.  For excisable goods imported, excise tax shall be paid at the time of importation and excise tax shall be assessed as per the customs law. For this purpose, time of importation is defined as time of customs clearance for excisable goods imported for home use and in other cases when the goods are brought to Ethiopia.


4. Basis of Calculation


Basis of calculation of excise tax is an area where the new proclamation has introduced a crucial paradigm shift from the previous proclamation. Due to this, the rate of excise tax is much less relevant due to the changes introduced to the basis of calculation. To begin with, excise tax may be levied based on the value or quantity of the excisable goods, which usually are referred as ad valorem and specific excise tax respectively. Both the previous and the new proclamation indicates that the Ethiopian tax excise tax regime prefers to combine the two types of excise tax methods. For this brief purpose, emphasis is given to the ad valorem aspect of the excise tax as it is the most important and widely used method of excise tax.

Consequently, in the existing excise tax law, for locally manufactured excisable goods the base of Computation of excise tax was cost of production. Cost of Production was defined as direct labor and raw material cost incurred in the production process, cost of indirect inputs and overhead costs, but does not include depreciation costs of machineries. Therefore, in the previous excise tax law, the notion of cost production is very important particularly for locally manufactured products.

The new excise tax proclamation has introduced the concept of ex-factory selling price of goods to calculate the amount of excise tax payable on a given excisable good. The law defines ex-factory selling price of excisable goods as;

  • The price payable by a purchaser to a manufacturer in transactions other than arm’s length transaction;
  • In any other case, the open market value of the goods at the time of removal from the manufacturer's factory.

However, the law further states that the ex-factory selling price of goods shall not include the following costs of the goods;

  • the value added tax payable on the supply of the goods;
  • the cost of excise stamps, if any; or
  • the cost of returnable containers.

Therefore, the excisable value of the excisable good manufactured in Ethiopia is selling price while for imported excisable goods excisable customs value of the goods as determined under the Customs Proclamation and the amount of Customs Duty (if any) payable on the goods under the Customs Proclamation shall be an excise value.


5. Introduction of Excise Control


Previously, it has been stated that the law requires the payment of excise tax at the time of removal of excisable goods from the manufacturer’s factory. In order to control this process, the new proclamation has introduced what seems an ambitious scheme to the excise tax regime. Accordingly, the proclamation states that excisable goods stored in the factory of a manufacturer shall be subject to the control of the authority. Therefore, until excisable goods are removed from the factory for consumption the tax authority will have a complete control over the goods. This means, according to the proclamation, the officers of the tax authorities may at anytime examine the goods and the permission of the authority will be required to remove or otherwise interfere in anyway with the goods. In addition, the authority may require the owner of the excisable goods to abandon to the goods to the tax authority and may destroy such goods at the expense of the owner.

In addition to the above mandates of the tax authority, manufacturers are required to keep and maintain at the factory, metering and measuring devices and such other equipment to measure excisable goods. Furthermore, the manufacturer is required to store all excisable goods in the factory, keep registration of materials in the approved form and enter therein the particulars of all raw materials and intermediate goods received at the factory for use in manufacturing, and balance the account at the end of each month. What is more, the manufacturer is obliged to keep a record of finished goods account in the approved form and enter therein particulars of all excisable goods manufactured therein and delivered therefrom and shall balance the account at the end of each month. The manufacturer is required to ensure that the excise tax is paid on any excisable goods consumed at the factory.


6. Introduction of Excise Stamp and Other Marking


The other major change in the new proclamation is the introduction of excise stamp. However, this scheme will be implemented when Ministry of Revenues enact a directive, which will specify the type of goods subject to excise tax, the manner and place of stamp and other necessary details.


7. Introduction of Excise Tax Refund Scheme


The new proclamation indicates conditions through which a refund will be requested for excise tax paid to the authority. Accordingly, the proclamation states that refund will be allowed if the authority is satisfied that excisable goods manufactured in Ethiopia or imported into Ethiopia

  • Have been damaged or stolen during the voyage or transportation
  • The goods have been damaged or destroyed while subject to excise control
  • The buyer has returned the goods to the seller in accordance with the contract of sale

Before being consumed or used in Ethiopia.

In addition, refund is possible when goods that have subsequently been used by a licensed or registered manufacturer to manufacturer un-excisable goods after excise tax has been paid.


8. Introduction of Set off for Raw Materials


In this scheme, licensed manufacturers are allowed to offset excise tax paid on the raw materials against the excise tax payable on finished goods.  However, this scheme will not be applicable to alcohol, tobacco and sugar manufacturers.


9. Introduction of Licensing and Registration


In addition to the existing bureaucratic hectic, the new excise tax proclamation requires the manufacturers and importers of excisable goods to be registered and licensed. As such, every excisable good manufacturers are required to register and obtain a license from the tax authority. Based on this, the tax authority has unrestrained power of issuing, suspending and revoking licenses given to manufacturers and importers of excisable goods. During the process of licensing, the authority has the power not only to regulate the tax compliance trend of the manufacturer or the importer but also regulate the technical capabilities of the manufacturer to manufacture excisable goods in Ethiopia. This will instigate questions regarding the original mandate of the tax authorities and their expertise regarding the regulation of excisable goods. 




All in all, the new proclamation has introduced major changes in the excise tax regime. In the meantime, there are uncertainties among the manufacturers regarding the application of some provisions on the ground. Many manufacturers are hopeful that the directive, which will be enacted by Ministry of Finance, will resolve such uncertainties. In all these efforts, the tax authority should not solely aim to collect much revenue at the expense of the sustainability of manufacturers, which will also undermine the country’s effort of easing doing business and attracting foreign investment.


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