Burned by a Backdoor Tax Shock

Jul 27 , 2025. By AMANUEL BEKELE ( FORTUNE STAFF WRITER )

The haze that lingers over Addis Abeba at dawn did little to hide the worry on AlemDemeke’s face when she left the Ethiopian Electric Utility (EEU) branch in the Haile Garment neighbourhood.

The 45-year-old civil servant held two receipts, each a riddle in itself. One showed she had paid 600 Br to recharge her prepaid electricity card, but received a credit of only 231 Br. A week later, she laid out another 300 Br; only 120 Br appeared on her meter.

“I don’t understand what is going on,” she said outside the office. “They’ll not tell me, either. I just emptied my purse for this payment.”

Alem lives alone in a one-bedroom condominium near Haile Garment, a modest inheritance from her late husband. Her salary at a government bureau is 6,450 Br a month, and even with occasional help from relatives, she says the budget barely stretches.

“Everyone knows it is very hard to live on this amount of money,” she said, pointing to the few appliances in her apartment.

A refrigerator is on the side, not far off from a TV set, a coffee grinder, and a single-burner stove. When staff told her the missing credit was an “unpaid fee,” she sighed.

“They just say it is this way,” she told Fortune. “What is the point of arguing? I’ll just put my head down and leave everything to God.”

Across town, taxi driver Yisehak Fisseha has a similar story to tell. The 29-year-old shares a one-bedroom condo in the Gottera neighbourhood with his fiancée, paying 8,500 Br in rent from the 13,000 Br he earns driving his uncle’s cab and selling goods online.

He feels the couple makes enough to get by. However, the new fees for charging the electric meter feel to him like an extra payment with no explanation.

“That is what makes it hard to accept,” he said. “It’s like I‘m recharging every two or three weeks. I used to do it once a month for the same amount.”

Confrontations with utility clerks left him uneasy.

“They only want your money and tell you to leave,” he told Fortune. “The arrogance makes you want to start a fight.”

"The truth is, we didn’t communicate well enough.” Esubalew Tenaw Head, Process & Quality Management Office. Ethioppian Electric Utility (EEU)

Alem and Yisehak are among nearly one million users who buy power in advance, a system that, until last November, spared them a tax already baked into postpaid bills. That changed in December, when the utility company began deducting a value-added tax (VAT) on every prepaid purchase. And, without notice, the company collects three months of unpaid VAT in one swoop this month.

“It’s a one-time payment,” said Esubalew Tenaw, EEU’s chief process and quality management officer. “There is no additional or hidden fee. Customers are simply covering what was supposed to be collected earlier.”

At issue is a directive the Ministry of Finance sent in September last year ordering the utility company to levy a 15pc VAT on all electricity use. Postpaid consumers, about 3.75million of EEU’s 4.6million customers, had been paying the tax for years. But the prepaid metres used by roughly 900,000 homes and small businesses were never reprogrammed, and the months slipped by.

The fix arrived only after the fiscal year closed, and auditors asked why the money was missing. Engineers updated the software; clerks stayed quiet. When prepaid users swiped their cards in July, the system charged the current purchase, adding VAT arrears from September through November 2024.

Receipts ballooned. Besides the power charge, the slips list service fees, VAT on consumption, VAT on the service fee, a 0.5pc regulatory levy collected for the Ethiopian Petroleum & Energy Authority and the mandatory Ethiopian Broadcasting Corporation (EBC) levy.

“There is an agreement with every customer allowing EEU to collect outstanding fees,” Esubalew said. “We thought that VAT for three months would not affect our customers much. But in some cases, we’re wrong.”

He concedes that headsup communication could have helped address the misunderstanding better.

“Some complaints have been addressed individually,” Esubalew told Fortune. "But the truth is, we didn’t communicate well enough.”

Even well-to-do households noticed the jolt. In the Bole area, Saron Dereje, 23, has topped up her family’s three-story home twice in two weeks. The house brims with a variety of appliances, including two TV sets, a large oven, a washing machine, and several grinders.

Her father, a restaurateur, and her mother, an accountant, foot the bills.

“I’ve had to top up twice in only two weeks,” Saron, a student, said. “If I had known about all these deductions in advance, I would have brought a larger sum to recharge. They need to improve communication.”

The standard bill is set to climb further. The federal government, after a deal with the IMF for a bailout package, is phasing out electricity subsidies over the next four years.

Financial support from development partners, particularly the World Bank, remains a linchpin of the transformation. The Access to Distributed Electricity & Lighting in Ethiopia (ADELE) program, a 303 million dollars initiative running through 2027, has boosted EEU’s liquidity, with the utility reporting 2.55 billion Br in cash reserves as of 2024.

The reforms are not without risk as tariff hikes triggered public discontent. Federal officials say this is a policy needed to repair an ageing grid battered by inflation and foreign currency shortages. They argue that higher tariffs will improve the utility’s finances, fund upgrades, and extend access to the roughly one-quarter of Ethiopians still without power.

EEU has recorded a striking turnaround last year, marking a 62pc surge in net profit as revenues approached 34 billion Br. Its executives, under Getu Geremew, the CEO, credited sector-wide reforms and aggressive customer expansion strategies for what appears to be a hard-won recovery after years of operational turbulence and fiscal shortfalls. In the first quarter of last year alone, over 90,000 new customers were added, a positive start toward the EEU's ambitious annual target of 600,000 connections. The expansion drive is part of a larger national agenda to raise electricity access, which still hovers around 54pc, a figure that remains low by sub-Saharan African standards.

Yet, the improved balance sheet belies deeper structural strains. While revenues in 2023/24 nearly matched the previous year’s actual figure of 35.4 billion Br, they fell short of the initial projections set under strenuous conditions. Chronic constraints, most notably, power interruptions and infrastructure theft, persist. The latter alone drained an estimated 64 million Br from the company's coffers in the past year. Project execution delays continue to undermine service reliability and cast a shadow over efforts to meet the rising demand.

Ongoing infrastructure modernisation, digitalisation of service platforms, and the rollout of reforms were bearing fruit. Customer satisfaction, a long-standing pain point, edged up from 60.3pc in 2022 to 61.8pc in 2023, a modest but symbolic improvement in a sector plagued by public criticism. It is now fuelled by disappointment with unexplained fees.

“One of the major issues comes from the lack of integration between prepaid and postpaid systems,” said Bahiru Oljira, executive director for energy supply and distribution at the EPEA.

Because the two databases do not communicate with each other, the backlog of VAT, service fees, and consumption charges had to be calculated and deducted simultaneously.

“The government still isn’t collecting what it’s owed,” he told Fortune. “For three months, customers were not charged the full amount, and now they are.”

However, Bahiru conceded the lump sum was heavy but disclosed officials’ worry that the staggered rollout would create more confusion.

“The media briefings were withheld to prevent panic,” he said. “It could have been done differently, but we believed it would be easier to handle it this way.”

According to Bahiru, clients who cannot cover the entire debt have a portion of each future payment set aside.

“In such cases, a partial deduction is made, leaving a usable balance,” he said.

The regulator’s slice of every bill is 0.5pc fee; the rest goes to the Finance Ministry, which insists it is merely applying the law. Its officials say, VAT is charged on the value of the electricity and again on the service fee, as it is for other taxable goods.

However, a directive issued last year exempts households that use up to 200kWh of electricity and 15cbm of water a month. Those above the threshold, seen as evidence of power-hungry appliances, receive no break.

Experts, such as Dawit Kejela, a former senior tax auditor now advising private clients, doubt the fairness of this.

“Electricity and water are basic needs,” he said.

Infrastructure should be financed, he acknowledged, but “the burden should be more fairly distributed.” According to Dawit, many receipts showed VAT exceeding the recharge amount, and line items were opaque, leaving clients blindsided.

“These adjustments could have been phased in over months or years,” he told Fortune. “The public should have been given time to prepare.”

Some wonder if they are being taxed twice. But, Dawit believes that is not the case.

“VAT is a single tax applied to the full amount, including service charges.” He told Fortune. “It may appear twice on the receipt, but it remains one lawful tax rather than two separate levies.”

Ethiopia’s power is still among the cheapest in Africa. A study put rates in Liberia, Sierra Leone, and Kenya at 17 to 57 Br a kilowatt-hour, compared to the five Birr charge here. The gap is narrowing as subsidies fade. Officials urge the public to save power, advice many view as hollow.

While senior government officials portray the episode as a short-term shock, EEU executives pledge they will post explanations online, train cashiers, and open a hotline before the next billing cycle.

PUBLISHED ON Jul 27,2025 [ VOL 26 , NO 1317]