Tax on Alcohol, Tobacco Worked. Study Finds That May Be the Problem

Aug 9 , 2026. By FITSUM TADESSE ( FORTUNE STAFF WRITER )

The excise-tax reform on alcohol and tobacco has done much of what it was made to do. Prices have increased, purchases of legally sold drinks and cigarettes have fallen, and government revenue has grown.

However, researchers presenting their findings at the Skylight Hotel on Africa Avenue (Bole Road) last week warned that the same reform may be undermining itself, as consumers move to homemade alcohol and illicit cigarettes that sit outside the tax net. The clearest measure of the shift is the legal cigarette market.

According to Oxford Economics Africa, legal sales were 278 million packs in 2019 but fell by 39pc a year later, after the mixed excise regime took effect that February. Volumes dropped another 15pc in 2021, recovered a little in the subsequent two years, and still reached 187 million packs in 2023, about 33pc below 2019.

After the fixed part of the tax was raised to 20 Br a pack in June 2024, sales slid again. Data for January to October last year showed 79 million packs. Oxford Economics Africa, using National Tobacco Enterprise (NTE) volumes, estimated the year could close near 91 million packs, about two-thirds below 2019.

Introduced in 2020 to curb harmful consumption and raise domestic revenues, the reform followed World Health Organisation (WHO) evidence that health taxes are among the most effective tools against non-communicable diseases.

The studies presented last week, by Fenot Associates, the Fenot Project and the Harvard T. H. Chan School of Public Health, tested how that theory has held on the ground.

It has held, but unevenly, the researchers declared, including Asmamaw Atnafu (PhD), Mideksa Adugna (PhD), Girmaye Dinsa (PhD), Kevin Croke, Stephane Verguet and Peter Berman.

Their interviews, conducted in Addis Abeba, Bahir Dar and Adama (Nazareth) between February and April last year, found that higher prices had cut purchases of taxed alcohol and cigarettes, yet rarely stopped drinking or smoking. Consumers switched to cheaper brands, smoked less, shared cigarettes and bought from lower-cost sources.

Smokers reported moving to illicit brands such as “Shalman”, “Gold” and “Oris”, which many find easy to access. Drinkers shifted from plant-bottled beverages to traditional spirits such as Areqi, Tella and Tej, citing price, availability and taste.

According to one of the researchers, these substitutions could weaken the excise regime's intended purpose, moving consumption into markets that largely fall outside the tax system.

A quantitative analysis led by Mideksa found the tax passed quickly into shelf prices, with St. George and Dashen beers, local gin and “Katikala”, locally brewed liquor, all climbing, and tobacco prices increasing, though unevenly across brands.

Household survey data traced a longer decline. The share of households reporting alcohol spending over seven days fell from 34.3pc in 2011 to 28.5pc in 2016 and 25.9pc in 2022.

The average real spending on alcohol dropped from 411 Br to 245 Br. For tobacco, the share fell from 7.1pc to 4.3pc to 3.1pc, and real spending from 43 Br to 23 Br, even as about 2.4 million adults still use tobacco regularly.

The steepest cuts came among lower-income households, the most sensitive to price, while consumption stayed concentrated among affluent ones. A qualitative study led by Asmamaw, drawing on 54 participants across the three cities, reinforced the point that fewer legal purchases did not mean quitting, only reducing, sharing or trading down.

Many consumers and retailers did not grasp the policy’s health purpose, blaming higher prices on inflation, fuel costs and foreign-currency shortages.

“Some wrongly credited traditional drinks with health benefits, a few claiming Areki could treat high blood pressure,” said Asmamaw.

He cautioned that this belief could deepen consumption and dull awareness of risk, pointing to the need for stronger public education.

The researchers estimated annual tobacco excise revenue could climb from about 6.3 billion Br in 2015 to 17.8 billion Br by 2022, a rise of about 182pc. But they found collections after implementation included about 13.6 billion Br from alcohol excise and 1.7 billion Br from tobacco.

However, manufacturers say the gains have a price.

Fekadu Ashebir has worked as a cost and budget group leader at the National Alcohol & Liquor Factory (NALF) for 17 years. He saw how higher taxes had raised prices and weakened demand, pushing some buyers to cheaper traditional drinks. A bottle of factory Areki sells for about 650 Br, against about 400 Br for similar homemade products.

But his employer, which produces 15 types of alcohol and about 22 million litres a year, first pays a 10pc tax on pure alcohol of 96pc strength before further taxes on bottled products, a stacking he said had raised costs and blunted the competitiveness of formal producers.

According to Dawit Kejela, a former audit group leader at the Ministry of Revenue and now a private tax adviser, illicit alcohol and tobacco sales were capping what the state could collect, draining money that might finance infrastructure and public services.

“Illicit tobacco escapes inspection and may carry unknown additives and flavourings,” he said. “Its composition and shelf life are unverifiable. Excessive tax without enforcement could hand untaxed products a larger share while disadvantaging domestic bottlers.”

Yet Dawit pushed back on the easy narrative. He disputed that traditional drinks were to take a large share of the blame for falling factory sales, calling the evidence insufficient. He noted that some homemade beverages are themselves fading as tastes change. He urged bringing traditional producers under enforceable standards, routine inspection and oversight, or banning those proven harmful.

A traditional food court offers the other side of the story. Nigussie Traditional Food Court, behind St. Mary's Church near Amist Kilo, serves stronger and lighter Tella, Tej and Areki flavours, chosen by customers' taste. The Manager there described the drinks as part of Ethiopia's heritage and hospitality, their local ingredients and preparation a draw against factory brands.

Federal health officials questioned the research itself, claiming it lacked updated price comparisons between legal and illicit tobacco, data central to reading substitution. Senior officials at the Ethiopian Food & Drug Authority (EFDA), in charge of control and inspections, contended that limiting interviews to three cities weakened any claim to speak for rural Ethiopia.

According to the Authority, it would approach Fenot Associates over methodology and data, and pressed for greater engagement and stronger evidence before the findings shape policy.

Nonetheless, the researchers held their ground that Ethiopia's experience turns on whether tax increases reach retail prices, and matches South Africa, Indonesia and the Philippines, where higher taxes cut consumption while lifting revenue. A companion study of the politics found the reform depended on leadership and coalition-building as much as evidence.

According to their findings, the privatisation of the former National Tobacco Enterprise a decade ago eased the old conflict between the industry and regulators.

The reform has increased consumer prices, cut taxed sales and lifted revenue. Whether it improves health and public finances over time, the researchers concluded, will depend less on the tax itself than on tighter control of illicit markets, stronger institutions, public education and coordination across government, without which consumption migrates to where the state cannot see it.

PUBLISHED ON Aug 09,2026 [ VOL 27 , NO 1371]