24 August 2014

Ethiopia: Corporate Income Tax Targeted in Bid to Boost Manufacturing Sector

The manufacturing sector only achieved 30pc of the government's plan during the last fiscal year

A government committee is finalising a draft amendment to reduce the 30pc corporate income tax levied on manufacturing industries.

The committee, drawn from the Ministry of Finance & Economic Development (MoFED) and the Ethiopian Revenue & Customs Authority (ERCA), has been at work for the past two months, according to an official close to the issue.

The corporate income tax is a flat rate of 30pc tax, which is levied on the service and manufacturing industries. The amendment, however, concerns only those in the manufacturing sector.

The draft will pass through the Council of Ministers and Parliament in less than two months' time, says a source close to the case.

The 30pc rate was the subject of discussion during a two-day training programme for the private sector, given by Ahmed Abtew, minister of Industry, at Millennium Hall, on June 30 and July 1, as well as the second Public Private Consultation Forum, chaired by Prime Minster Hailemariam Dessalegn, on July 2, 2014 - also at Millennium Hall.

After the suggestions from the various businesspeople, officials from the ERCA, MoFED, Federal Investment Commission (FIC) and Ministry of Industry (MoI) held a meeting. At this time, they agreed that the rate must be reduced, according to an official who was part of the meeting.

The suggested rate will be somewhere between 20pc to 25pc. This could improve the private sectors' engagement in the manufacturing sector, the official said. The sector only achieved 30pc of the government's plan during the last fiscal year, 2013/14, according to data from the MoI.

"Tax rate reduction and investment incentives should not be confused; each has its own principle," says an anonymous tax law expert. "Reduction in tax rate should be inclusive of all sectors, so that the tax system could be simple to understand and implement."

In addition to the proposed tax incentive for the manufacturing sector, an overall tax review is in process by the MoFED and ERCA, including Income Tax, Excise Tax, Turn Over Tax (TOT) and Value Added Tax (VAT). This, too, could be approved by Parliament during the first quarter of the current fiscal year, according to an official from the ERCA.

The ERCA - created in 2008 as a result of the merger of the Ministry of Revenues, the Ethiopian Customs Authority and the Federal Inland Revenues - experienced a major tax revision of customs during the last quarter of the last fiscal year. The revision includes incentives on the import of semi processed products by the local manufacturing sector, in a bid to encourage manufacturers.


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