Flour millers are facing severe financial strain, with rising taxes, customs duties, and financing shortages pushing many factories to the brink of closure. The Ethiopian Millers Association (EMA), which represents over 200 members, warns that tax burdens, predefined tariffs, and costly cross-border transactions, including unauthorised checkpoints, are crippling the industry.

Some flour mills have already shut down, while others are barely staying afloat, according to Dereje Tadesse (PhD), the Association's general manager. He has documented the closure of four factories in his field research.

Among those struggling is Abat & Mehari Flour Factory. General Manager Mehari Adane says the company is being squeezed by withholding tax issues. Since most of its suppliers are small-scale traders classified under Category B and C, they lack proper receipts and pay taxes based on estimates. This makes it impossible for the company to withhold taxes when purchasing inputs, forcing it to shoulder a 13 million Br tax burden.

To sidestep this issue, the factory has turned to buying wheat directly from farmers, where withholding tax does not apply. However, sourcing 1,000qtls of wheat daily from scattered farmers is proving unfeasible.

“It does not align with our needs,” Mehari told Fortune.

Adding to the crisis, commercial banks have tightened lending, leaving millers without the working capital to sustain operations. Daily wheat purchase costs have surged from one million Birr to 6.5 million Br, making it impossible to secure months' worth of stock.

“Banks are not lending money. The situation is exhausting,” Mehari said.

Woineshet Moges, general manager of Michu Trading Plc, faces similar tax burdens. Like many in the industry, she has often covered withholding taxes for suppliers, increasing her operational costs. Many traders and companies refuse to comply with withholding tax rules, making it even more challenging.

“The taxation system is discouraging,” Woineshet told Fortune. She has been manufacturing baby food for four years and appreciates recent changes in Merkato, where she can now purchase input products with proper receipts.

Customs duties are another major hurdle for manufacturers. Dereje says packaging film tariffs are being calculated at 3.20 dollars per kg, nearly double the actual purchase price of 2.40 dollars to 2.60 dollars per kg.

“These inputs should be duty-free,” Dereje said. If that is not possible, he urges customs officials to use company invoices for tariff calculations instead of applying inflated pricing.

The Association wrote a letter to the Ethiopian Customs Commission (ECC) last month to address these concerns. In response, Commissioner Debele Kabeta has allowed manufacturers to pay duties based on their submitted invoices. In a recent directive, Debele announced that post-release verification will be used to avoid clearance delays. Producers will now be assessed based on the legal transaction value they declare when importing goods.

Mulay Weldu, head of the tax policy department at the Ministry of Finance (MoF), says withholding tax is a form of income tax and must be paid by all businesses. However, he says this will be considered in the income tax proclamation.

Withholding tax is primarily meant to track trader income and ensure proper tax collection, explains Mulay. Manufacturers are required to deduct 30pc when purchasing from suppliers who lack a Tax Identification Number (TIN) or a trade licence. While withholding tax itself is not the problem, Mulay argues that the enforcement system needs improvement. He suggests a digitalised tax system to integrate withholding tax more efficiently and reduce compliance issues.