Needless Tax on Garment Risks Unraveling Industry Gains

Needless Tax on Garment Risks Unraveling Industry Gains

Dec 27 , 2025. By Yonas Jarsa ( Yonas Jarsa is a licensed attorney practicing before the Federal Courts of Ethiopia. He advises local and international clients on corporate, commercial, and regulatory matters, with a particular focus on arbitration, mining, and financial sector regulations. He also provides guidance to institutions on legal strategy, compliance, and dispute resolution in the Ethiopian context. He can be reached at (yonasjarsa@gmail.com) )

The national ambition for economic transformation has long been woven into the future of the textile and garment sector. For millions, these sectors represent more than the hum of machinery. They offer jobs, skills, and the promise of a life beyond poverty. Young women, in particular, have found in these textile and garment factories a crucial first step into the workforce.

However, a new administrative circular from the Ministry of Revenue now casts a shadow over this promising but fragile progress. The textile and garment manufacturers may soon face excise taxes, which could undermine their role as a beacon of opportunity.

Excise tax, by its nature, is intended to be selective. Its spirit is deliberate, not all-encompassing. Essential goods that support daily life have always been spared this burden. The law, revised in 2022, spells out its purpose. This form of tax is imposed on goods that harm public health, such as alcohol and tobacco, damage the environment, or are considered luxury goods. Clothing hardly fits the bill for a luxury.

For many families, garments are an everyday necessity, not an indulgence. Imposing excise tax on clothing through a broad reading of HS codes risks distorting the law’s purpose. It blurs the boundary between selective excise and broad consumption taxes like VAT, which could hit the most vulnerable the hardest.

Does this policy serve the greater good? Does it threaten to unravel hard-won gains for those at the bottom of the economic ladder?

The Ministry’s circular targets factories that might try to escape excise liability by classifying their activities as services rather than manufacturing. By focusing on specific HS codes, the directive authors may want to close perceived loopholes. However, guidance issued through a circular does not have the authority to amend existing law. Tax rules, especially those with far-reaching economic and social consequences, should derive from unambiguous legislative intent, not from administrative overreach that adds confusion.

Ambiguity in tax policy can erode the confidence of investors and workers alike. In a country striving to build an industrial base, predictability should be everything. Uncertainty in the rules undermines planning, investment, and job security. When the rules of the game are open to sudden changes, the most vulnerable are often the first to feel the impact.

Domestic garment makers already contend with fierce competition from imports, especially cheap secondhand clothing sold at low prices or arriving duty-free. These thrift garments capture the loyalty of budget-conscious families and undercut domestic producers. Manufacturers should also contend with a mounting stack of costs, including input materials, utilities, VAT, income taxes, and payroll expenses. Challenges with infrastructure and logistics only add to the burden.

Layering an excise tax on domestic products would make them even more expensive, pushing them further out of reach for ordinary families and weakening the sector’s competitiveness.

When the cost of garments rises, families may struggle to afford the basics. When factories face higher taxes, jobs are put at risk. The faces behind the numbers are overwhelmingly young women, many of whom are supporting families or saving for their futures. The loss of a single job in this context is not simply a statistic. It is a setback for gender empowerment and economic equity in a society where such opportunities remain limited.

Policymakers should weigh fiscal needs against social consequences.

There is precedent elsewhere for a different approach. Bangladesh, Kenya, and Vietnam have built thriving garment sectors without excise taxes on clothing. Instead, they rely on VAT frameworks, often zero-rated for exports, and incentives that attract investment and boost competitiveness. These countries have recognised that taxing essential goods stifles growth and discourages innovation.

Ethiopia’s official strategies for investment and industrialisation position manufacturing as a foundation of progress. Imposing excise through administrative fiat risks undermining this vision, shaking investor confidence, and slowing momentum. If the goal is to increase revenue, policymakers should look for better responses that do not sacrifice the industries that anchor so many livelihoods.

Ultimately, behind every government policy are people whose futures are at stake. Ethiopia’s progress depends on choices that balance fiscal responsibility and social justice. Policies should reflect not only the drive for revenue but the imperative to protect and uplift those working hardest for a better life.

PUBLISHED ON Dec 27,2025 [ VOL 26 , NO 1339]