In advanced negotiations with Toppan Gravity Ethiopia, the Ministry of Finance is nearing the launch of a nationwide excise stamp system that officials say will help modernise tax administration and crack down on illicit trade.
The plan is part of a broader effort to boost the tax-to-GDP ratio to 18.2pc within four years. According to statista.com, Ethiopia's GDP will reach 201 billion dollars in 2029, allowing the federal government to generate 36.1 billion dollars in taxes. Tax officials believe they need to close loopholes across industries, from tobacco and alcohol to bottled water and carbonated beverages, all seen as particularly vulnerable to counterfeiting and smuggling.
Last year, the Ministry invited technology companies to propose solutions for an excise stamp and management system that would track stamps at every point in the cycle, from the moment they roll off the production line to the time they reach consumers. The request drew 20 bidders.
A senior official at the Finance Ministry, speaking on condition of anonymity due to the sensitive nature of the talks, confirmed that discussions with Toppan Gravity Ethiopia are at an advanced stage. The company is a joint venture between Toppan Gravity, a subsidiary of Japan-based Toppan Inc., which holds a 51pc share, and Ethiopian Investment Holdings (EIH), investing through Berhanena Selam Printing Enterprise and Education Materials Production & Distribution Enterprise.
The official declined to reveal when the Ministry plans to issue a formal award but described the negotiation as nearing completion.
“We’ve no comment on the negotiations,” said Kalkidan Arega, CEO of Toppan Gravity Ethiopia.
Federal officials see the excise stamp system as vital for protecting legitimate businesses and recovering tax revenue lost to the underground economy. Last year, the federal government collected 28 billion Br in excise tax but fell short of some of its revenue targets, prompting officials to look for ways to close the gap. Successive governments have long used an excise tax decree targeting certain high-value or health-hazardous products. But that decree missed its 27.7 billion Br revenue target last year by two billion Br.
They believe the new system, which uses a web-based ordering platform, verification tools, and accounting mechanisms, will improve data collection and help confirm product authenticity. Officials estimate it could bring in 84 million Br in its first year, a 0.3pc increase, though they argue the system’s primary value lies in reducing forgeries and closing off illicit channels.
According to Abraham Rega, a tax policy advisor at the Ministry, industries such as tobacco, are known for being prone to smuggling. Contraband tobacco is often smuggled across borders, bypassing official channels. In principle, the excise stamp system would make it more difficult to pass off illicit goods once every pack should carry a traceable and government-issued seal.
“Revenues have been lost,” the anonymous official told Fortune. "The core goal is transparency and oversight."
The new stamp-based system comes as part of the federal government’s drive toward tax modernisation, overseen by the Ministry of Revenues. Officials plan to require factories to install surveillance cameras and use automated accounting tools. They also plan to issue unique product codes to be affixed at production sites or customs checkpoints. The initiative, they say, will create a level playing field for law-abiding manufacturers who are now undercut by cheap and often dangerous counterfeits.
Some of the loudest voices in favour of the system come from the alcohol industry.
“We would rather want it to start soon,” said Mesfin Abate, president of the Alcohol Manufacturers Association, representing 43 manufacturers, and general manager of the National Alcohol & Liquor Factory.
A state-owned enterprise incorporated in 1905, the factory generated about 1.2 billion Br in annual revenue. However, runs at only 35pc of its capacity, despite having three production lines and the capacity to produce 80,000lts daily across 15 products. Mesfin attributed the underutilisation mainly to rampant illicit trade, which he says allows competitors to sell alcohol 200 Br cheaper a bottle.
"The stamp system will help close off those illegal channels," he told Fortune.
Tobacco producers say they, too, are burdened by contraband trade.
National Tobacco Enterprise, in business since 1941, produces popular brands such as Nyala and Winston in Addis Ababa. Yayeherad Abate, the company's head of corporate affairs, claims that the country lost more than 4.8 billion Br last year to contraband products. Contraband trade accounts for 53pc of the tobacco market, particularly in the Somali Regional State and Dire Dawa City Administration. Smugglers have found workarounds to import cigarettes illegally, evading duties and taxes.
The situation has worsened recently, leading to a 65pc drop in the Enterprise's sales in four months and forcing four of the company’s five production lines to shut down. Yayeherad wondered how quickly the new regulations might be enforced, stating the need to clear out stock that lacks any stamp.
“We need more than a year,” he told Fortune, concerned that a swift and indiscriminate rollout might leave them with unsellable inventory.
Not all sectors believe the system is worth the price. A recent study by HST Consulting found marginal counterfeiting in the beer industry. It warned that the projected cost of adopting the new technology, estimated at 372.3 million dollars for breweries, could hurt more than help. The sum includes 21.8 million dollars for acquisition and 223 million dollars for operations. Four major breweries dominate the beer market, and they anticipate adjustments to the excise tax that could cost them an additional three billion Birr. In the face of these figures, some brewers say the stamp system’s impact on contraband might not justify the expense.
Carbonated drinks and juice bottlers are bracing for the new system with measured optimism. But they are worried about disruptions.
According to Ashenafi Merhed, general manager of the Association of Ethiopian Beverages Manufacturing Industries, internet outages and power cuts can wreak havoc on bottling lines that rely on computerised controls.
“Implementation will be daunting,” he fears.
Bottled water manufacturers, which have long objected to excise taxes on their products, echo these concerns. Many already face operational hurdles, including frequent utility interruptions that cut into production runs.
“Final prices will increase,” said Dejene Terefe, deputy director at SBG Industry Plc, producer of Arki Water.
He fears that changes to production processes and the expense of obtaining the stamps will ultimately be passed on to consumers.
Economists say that properly applied excise stamps can make a difference in tackling illicit trade. The key, they caution, is to avoid unintended fallout, such as driving up costs or discouraging manufacturers.
“Sectors already burdened with high taxes should not be further strained,” said Tadesse Lencho (PhD), a lecturer at Addis Abeba University, who warns that compliance expenses could exceed three percent of operating costs.
He believes that some industries deserve credit facilities to help them absorb the expense of adopting new technologies and argues that businesses need a more consistent tax appeal process. Many domestic manufacturers complain about audit discrepancies, claiming authorities overlook differences in input and output coefficients.
Habtamu Workeneh, senior advisor to Finance Minister Ahmed Shide, confirmed that the Ministry was assessing the deal, but stopped short of confirming when the formal award will be granted.
PUBLISHED ON
Mar 03,2025 [ VOL
25 , NO
1297]
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