Key Amendments Introduced by Excise Tax (Amendment) Proclamation No. 1287-2023

Full Title: The official title is the “PROCLAMATION NO. 1287/2023 EXCISE TAX (AMENDMENT) PROCLAMATION.” Short Title: It can be cited as “Excise Tax (Amendment) Proclamation No. 1287/2023.” Issuing Authority: The proclamation was issued in accordance with Article 55(1) and (11) of the Constitution of the Federal Democratic Republic of Ethiopia. It was signed by Sahle-Work Zewde, President of the Federal Democratic Republic of Ethiopia. Publication Date: The proclamation was published in the Federal Negarit Gazette on September 15, 2023. Effective Date: This Proclamation “shall enter into force on the date of its adoption by the House of Peoples Representatives on the 29th day of April 2023.” It’s important to note the discrepancy between its adoption date (April 29, 2023) and its formal publication date in the Negarit Gazette (September 15, 2023). Purpose and Rationale for Amendment: The proclamation was deemed necessary for several key reasons: To lower the “exaggerated excise tax rate” imposed on imported new vehicles and some other items. To address the impropriety of granting special tax and duty privileges to persons and organizations who also import goods on which excise tax is imposed due to the damage they inflict on the environment. To generate more revenue for government development activities by imposing excise tax on telecommunication services. Amended Legislation: This Proclamation amends the existing “Excise Tax Proclamation No. 1186/2020 (as amended).”

The “Excise Tax (Amendment) Proclamation No. 1287/2023” introduces several significant revisions to the existing Excise Tax Proclamation No. 1186/2020 (as amended). These amendments were driven by several key objectives: to reduce what were deemed “exaggerated” excise tax rates on imported new vehicles and certain other items, to address the impropriety of granting special tax and duty privileges for environmentally damaging excise-taxed goods, and to increase government revenue for development activities by imposing excise tax on telecommunication services.

Key Amendments

This Proclamation brings forth important changes that reshape the excise tax landscape in Ethiopia.

1. Revision of Excise Tax Rates and Scope

The Proclamation directly addresses concerns regarding existing excise tax rates and expands the scope of taxable services.

• Rate Adjustments: A primary aim is to lower the “exaggerated excise tax rate” previously imposed on imported new vehicles and certain other specified items.
• New Taxable Service: Excise tax shall now be imposed on telecommunication services with the explicit goal of generating additional government revenue to fund development initiatives.
• Clarified Tax Application (Article 5(2) Amended): Sub-Article (2) of Article 5 of the principal Proclamation has been replaced. The new provision clarifies that Excise Tax will be charged at the rate specified in the First Schedule attached to this Proclamation for excisable goods and services, as determined under Article 9.
• Commencement for Fats and Oils (New Article 5(3)): A new Sub-Article (3) has been added to Article 5. It stipulates that the commencement date for collecting excise tax on edible animal or vegetable fats and oils and their cleavage products (classified in Chapter 15 of the Customs Tariff) will be determined by the Ministry of Finance based on information received from the Ministry of Health.

2. Introduction of New Definitions

To provide greater clarity and precision, new definitions have been added to Article 2 of the principal Proclamation by inserting new Sub-Articles (23), (24), and (25), with subsequent existing sub-articles being renumbered.

• Ethyl Alcohol (New Sub-Article 23): “Ethyl Alcohol” is now specifically defined as alcohol with a purity of 80 degrees or more.
• New Vehicle (New Sub-Article 24): A detailed definition for “New Vehicle” has been introduced. This includes vehicles imported in semi-knocked down (SKD) or complete knocked down (CKD) form for local assembly, as well as complete built-up (CBU) vehicles of specific tariff headings (87.02, 87.03, 87.04, 87.05, and 87.11) that arrive at Ethiopian customs within three Gregorian calendar years of their manufacturing year (including the manufacturing year) and have been driven less than 4,000 kilometers abroad. For vehicles not covered by these specific tariff headings, a “New Vehicle” is defined as one that arrives within four Gregorian calendar years (including the manufacturing year).
• Used Vehicle (New Sub-Article 25): “Used Vehicle” is defined as any vehicle not covered by the definition of “New Vehicle.” Its age is calculated from the manufacturing Gregorian calendar year to the Gregorian calendar year of its arrival at the Ethiopian customs territory.

3. Changes to Exemptions

The Proclamation addresses the issue of tax and duty privileges for certain goods.

• Environmental Damage Consideration: The Proclamation explicitly states that it is deemed “not proper to grant persons and organizations with special tax and duty privileges to also import goods on which excise tax is imposed because of the damage they inflict on the environment free of excise tax.” This indicates a policy shift towards tightening excise tax exemptions for goods that are environmentally damaging, even if the importer enjoys other special privileges.
• Revised Exemption Conditions (Article 8(1)(a) Amended): Sub-Article 1 Paragraph (a) of Article 8 of the principal Proclamation has been deleted and replaced. The new provision specifies that goods meeting conditions set out under the Second Schedule attached to this Proclamation are eligible for exemption.

4. Transitional Provisions

A new Sub-Article (5) has been added after Sub-Article (4) of Article 43, introducing a transitional grace period to manage the implementation of the new provisions.

• Grace Period for Existing Permits: The new Proclamation’s excise tax provisions will not apply to goods imported free of other taxes and duties if a bank permit for their import was obtained before this Proclamation’s effective date, provided the goods are imported within two months from its effective date. This allows for a short window for previously planned imports under the old regime.

Enactment and Publication Details

The “Excise Tax (Amendment) Proclamation No. 1287/2023” was adopted by the House of Peoples’ Representatives. Although it was done at Addis Ababa on 15th September 2023, it entered into force on 29th April 2023. The official publication date in the Federal Negarit Gazeta is explicitly stated as 15th September 2023. This indicates that while the Proclamation’s formal signing and gazetting occurred later in September, its legal effect (entry into force) was backdated to April 29, 2023.