The auto market foresees changes as a draft proclamation of excise tax on imported vehicles is revised. An amendment to the cylinder capacity (CC) of vehicles imported and the amount of excise tax they are subjected to pay was tabled for Parliament two weeks ago.

If passed, this will be the second amendment since 2018, after Prime Minister Abiy Ahmed (PhD) took office. His administration lowered the 30pc excise tax to five percent on vehicles up to 1,300cc, 18 years after it was first instituted.

Vehicles below 1,500cc will be subjected to 10pc excise tax and an additional 10pc for cars up to 2,500cc capacity. Imported cars with a capacity of up to 3,000cc will pay 30pc, while a 60pc tariff is demanded on vehicles above 3,000cc.

Excise tax is one of the five taxes importers pay, generating 12 billion Br in revenues for the federal government and regional states. Almost 10 groups of rates and 19 categories of excusable items are imported with various tariffs, from 10pc in textiles, and television sets to 100pc for alcohols, perfumes and automobiles, of which close to 69pc are bought from Asian countries. China takes the lead as a main source of imports claiming 26pc of the share last year.

Tax officials fear the federal government may lose as much as five billion Birr from the reduced rate. However, they are hopeful it will boost car imports, estimating the loss between 2.1 billion Br to 3.3 billion Br.

Vehicles represented the fifth largest import for Ethiopia in 2021, where the country bought over 15 billion dollars worth of goods. With a share of 7.8pc of this import bill, car importers paid 1.2 billion dollars, primarily for automobiles worth half a billion dollars.

The draft proposed excise tax on vehicles below 1,500cc double to 10pc, while on cars above 3,000cc lowered to 60pc.

For Arba Beyene, a practising lawyer who worked for the Ministry of Revenues for three years, this gives the advantage to the few monied over the majority. He believes the amendment should address vehicles below 1,500cc, used mainly by middle and lower-income individuals.

"It betrays the aim of the amendment," said the lawyer.

The bill considerably reduces the excise tax on new vehicles above 3,000cc, showing that the total taxes translated to a 121pc rate are still high compared to neighbouring countries such as Kenya and Rwanda.