A Tax Shock Jolts Edible Oil Industry as Retroactive Levies Stir Confusion

Apr 13 , 2025. By AKSAH ITALO ( FORTUNE STAFF WRITER )

Takeaways:

A resurgence of a long-dormant tax rule has unleashed a storm of uncertainty on the edible oil industry, following the Ministry of Revenue’s sudden demand for retroactive value-added tax (VAT) on soybean cakes. The demand has upended operations across the industry, entrapping manufacturers in a web of back taxes, interest, and penalties, with some liabilities exceeding tens of millions of Birr.

Soybean cake, a byproduct that accounts for over 80pc of processed soybeans, is important to the livestock feed industry and has become increasingly valuable in international markets, particularly in China and Kenya. For nearly nine months, the product had been traded VAT-free under a widely understood exemption. However, tax authorities now argue that the exemption applies only to soybean flour, not cakes, a technical distinction with profound financial implications.

Mohammed Yousuf, the outgoing chairman of the Ethiopian Edible Oil Manufacturing Industries Association, described the situation as dire. According to him, manufacturers are struggling with retroactive tax demands that, for some, have escalated to sums as high as 50 million Br.

“Companies won’t be able to survive,” Mohammed told Fortune. "The implication will be severe for businesses already burdened by soaring input costs and supply shortages."

Leaders of the industry's lobby group, representing around 60 edible oil manufacturers, have appealed to the Ministry of Finance, seeking immediate intervention and clarification. They argued that soybean cakes had been exempted from VAT through official directives. They urged the authorities to issue clear and formal instructions to district tax offices to prevent arbitrary and retroactive enforcement, which they claimed is unfair and financially devastating.

The abrupt shift in tax enforcement has left manufacturers holding unsold inventory and uncertain about their operational future. Many have ceased sales entirely, while others are reluctantly increasing prices to offset new tax liabilities.

Tigist Alemayehu, the finance manager at Rongyi Ethiopia Edible Oil Industrial Plc, a prominent edible oil producer based in Dukem, 45Km east of Addis Abeba, confirmed that the company has suspended sales of soybean cakes due to the confusion. The firm, capable of processing up to 1,200Qtls daily, has been operating at less than half its capacity due to input shortages. It now finds itself holding stocks.

“We’ve temporarily suspended sales,” Tigist told Fortune.

According to her, reclaiming uncollected VAT retroactively from customers is practically impossible, harming the company's cash flow.

“The impact on us cannot be understated,” said Tigist.

Rongyi Ethiopia, like many other manufacturers, also faces a severe shortage of soybeans, further exacerbating operational stress. Soybean prices have surged due to limited domestic availability, inflating costs and forcing edible oil prices upward, recently reaching 1,600 Br for five liters. With soybean cakes representing a byproduct of edible oil manufacturing, the sudden VAT obligations compound the industry's financial burden.

The government's drive to enhance tax collection through aggressive VAT enforcement is motivated by broader fiscal goals. Federal authorities plan to boost the tax-to-GDP ratio by four percentage points to 11pc by the fiscal year 2027/28. This fiscal year's tax collection target has risen sharply to 1.5 trillion Br, with 487.22 billion Br expected from domestic sources, including 170 billion Br from VAT collections.

Yared Fekade, director of the tax declaration monitoring directorate at the Ministry of Revenue, defended the enforcement, citing legal obligations.

“We're simply enforcing the law as it stands,” he told Fortune. "Ignorance of the law cannot exempt businesses from compliance."

He warned that unpaid taxes would continue accruing penalties and interest monthly.

However, the sudden enforcement has provoked criticism from the industry and experts.

Tadesse Lencho (PhD), a tax law expert, criticised the confusing language and inconsistencies in the tax regulations, which he described as "poorly drafted." He argued that clarity and predictability are vital in tax legislation and pressed the necessity of training for tax administrators alongside clear communication from policymakers.

"Exemptions are commonly narrowly treated," he said. "Policymakers should provide explicit guidelines to prevent ambiguity. Discipline and clarity are needed when crafting the laws."

The situation has also severely impacted the animal feed sector, which heavily relies on soybean cake as a crucial input. According to Abraham Negash, the finance manager at Dina Animal Feed Processing, escalating prices and market uncertainty have forced his company to slash its soybean cake demand drastically from 100Qtls daily. The company now seeks alternative feed ingredients to respond to rising costs and maintain production.

Abraham expressed frustration with the current tax situation, arguing it complicated an already challenging economic environment.

"The taxes have only complicated matters," he said, describing the predicament faced by feed processors nationwide.

Elf Manufacturing Commercial Processes, another major player in animal feed production located in the Tulefa Industrial Park, Amhara Regional State, 64Km north of Addis Abeba, faced similar concerns. Incorporated in 2021, Elf Manufacturing produces over 16 types of animal feed on 15hct of land.

Its General Manager, Biniam Dereje, said a nearly 30pc surge in input costs in recent weeks, forcing the firm to pass increased expenses onto customers, who have begun to complain. Despite customer dissatisfaction, Biniam said they have "no choice" but to further increase prices to maintain profitability.

On April 11, 2025, officials from the Ministry of Finance held discussions with edible oil manufacturers to address their grievances.

Mulay Weldu, the Ministry's tax policy director, acknowledged the industry's concerns, promising that studies and policy reviews would be conducted to address the issues.

"We'll look into the concerns and give directions," Mulay assured industry leaders.

During the meeting, Mohammed blamed the unfair competitive environment created by equivalent import duties on raw materials and finished edible oil products. He urged policymakers to exempt soybean cakes from taxation, thereby providing clarity and stability for the struggling industry.

The federal government remains committed to its aggressive tax collection targets, having already collected 547 billion Br in tax revenue within the first seven months of the current fiscal year. Additional penalties and interest for unpaid taxes totaled 51.9 billion Br. The combined federal and regional governments target 1.5 trillion Br in domestic tax collections for the fiscal year, placing considerable pressure on tax authorities to enforce strict compliance.

However, the abrupt and retroactive VAT enforcement threatens the viability of edible oil manufacturers and feed processors. With businesses reporting closures and substantial job losses, industry leaders and analysts agree that urgent and coordinated policy action is needed to prevent a deeper economic crisis.

"Many businesses have been compelled to close down," Mohammed said.

He warned of the ripple effects through supply chains and employment.

PUBLISHED ON Apr 13,2025 [ VOL 26 , NO 1302]

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