Excise Reform Finale

The parliament is due to meet this week to approve the controversial excise tax bill, which recently excluded telecommunications from the taxable items list.

The Revenue, Budget & Finance Standing Committee has finalised the consultative meetings and public hearing on the bill that resulted in a number of changes from the initial bill.

Last week, the five percent excise tax on telecommunication service was waived. The 15pc excise tax on bottled water and the 35pc tax on cars with below 1,300cc engine capacities were lowered to 10pc and five percent, respectively.

Excise tax on the telecommunication service was removed after the standing committee summoned the Ministry of Finance with the telecom executives for a discussion on February 4, 2020. Following the meeting, the three parties agreed to waive the proposed taxation on telecom services. The Ministry has already amended the bill and proffered it to the standing committee for an endorsement.

During the discourse, the Ministry officials stated that the intention of the proposed excise tax was increasing revenues, according to Lemlem Hadgu, chairperson of Revenue, Budget & Finance Standing Committee of the parliament.

While drafting the excise tax law, the Ministry has considered imposing five percent or 10pc excise tax on telecom service with the main aim of generating either 1.5 billion Br or 3.1 billion Br in revenue, respectively. This translates to a contribution of 0.08pc for the five percent option and 0.17pc for the 10pc option to the excise-to-GDP ratio.

Currently, the excise tax contribution to GDP stands at 0.7pc, and the bill targets to double this figure to 1.4pc.

"However, we've reached a consensus on how the tax will affect the coverage of telecom services and mobile users, which will, in turn, affect the revenue of the government," said Lemlem.

Currently, there are close to 45.6 million total telecom subscribers. Mobile voice subscribers, data and internet users and fixed service users total 44 million, 22.7 million and one million, respectively.

In the first half of the current fiscal year, Ethio telecom registered 22 billion Br of revenue and paid two billion Birr to the government in the form of dividends.