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HCBST 2016

Abstract

An Ethiopian tax and customs law is characterized by frequent repeal and amendments. The
number of proclamations, regulations and directives makes it to some extent difficult to
understand this area of law.

Excise tax is one of the most well known forms of tax in Ethiopia. It is a tax levied on selected
goods such as luxury goods and basic goods which are demand inelastic. Thus, this tax as such
will not create burden on the majority of the population. Moreover, excise tax is also applied to
goods which are considered hazardous to health and that may cause social problems.

In Ethiopia, both the federal and regional governments collect excise tax. ERCA is responsible
for collecting excise tax for the Federal government and collects excise tax levied on locally
produced and imported items into the country. Different rates are recognized under excise tax
in Ethiopia: The rates are horizontally applicable whether a good is produced locally or
imported from abroad. Excise tax has 10 bands or groups of rates and 19 categories of excisable
items at which excise can be calculated and charged, these band rates vary from 10% in textiles
and television sets to 100% in alcohols, perfumes, automobiles and toilet waters. The excise tax
shall be paid on goods mentioned under the schedule of the proclamation. (Fikadu.A, 2013)

Base of computation of excise Tax is cost of production except depreciation, and cost, insurance,
freight and customs duty in respect of goods produced locally and imported goods respectively.
In calculating excise tax payable on textile and textile products produced in a factory, vehicles
assembled locally, the tax paid on import of material inputs shall be deducted.

Regarding to timing and payment enforcement, in goods produced locally, the producer is
obligated to effect payment within 30 days from the date of production, in goods imported, the
importer at time of clearing the goods from customs area.

Taxpayers have the obligation to maintain books and accounts in accordance with accounting
principles; submit to the authority necessary information for proper collection of the tax; comply
with inspections by delegates of the tax authority; and respect all the obligations mentioned in
the proclamations and notify any change within 5 days. By the Tax Authority, it appears that a
person has understated his tax obligation; the Authority shall issue an additional assessment.
By Amanuel Tsegaye
HCBST 2016

Penalties for Late filling are 5% of the amount each month if failure continues up to 25% of such
amount. In case of any person or entity commits an offence, that person or the manager is liable
on conviction to a fine not more than 100,000 birr and to imprisonment not more than 10 years.

1. Introduction

Excise taxes, governmental levies on specific goods produced and consumed inside a country.
Excise is derived from the Latin word „excisum‟, They differ from tariffs, which usually apply
only to foreign-made goods, and from sales taxes, which typically apply to all commodities other
than those specifically exempted. Excise tax which is an indirect tax, is a tax levied upon goods
manufactured not upon sales or the proceeds of the sale. It is levied on the manufacturer or
importer of the goods in respect of the goods produced or manufactured or imported by him/her.

In their modern form, excise taxes were first developed by Holland in the 17th century and
established by law in England in 1643. World wide wise excise taxes were repealed many times;
excise taxes started expansion during World War II and greatly increased
afterwards.(www.encyclopedia.com)

According to Abebe H in Ethiopia Excise tax is the second of the five taxes levied on import
items and it is one of the most well known forms of tax in Ethiopia. It is a tax levied on selected
goods such as luxury goods and basic goods which are demand inelastic i.e. goods that shows no
change at all in quantity demanded when price goes up or down. Moreover, excise tax is also
applied to goods which are considered hazardous to health and that may cause social problems.
Additionally, the government uses excise tax as a revenue-producing device. In the fiscal year
2009, excise tax on import items has provided revenue of 1.4 billion birr which represented
11.65 %of the receipt of ERCA from import taxes.

Up to the year 2002, the excise tax was regulated by the sales and excise tax proclamation no
68/1993, with its amendments proclamation no77/1997, 149/1999, 228/2001 and 237/2001. In
the year 2002, the Ethiopian tax reform introduced excise tax separately from sales tax, Excise
Tax Proclamation No 307/2002 or 307/1994 EC . Afterwards it has been amended two times by
the Proclamation No 610/2008 and Proclamation No 517/2008. The amendment includes some
replacements of words and phrases, repealed and amended some sub articles repealed and
replaced some sub articles and article with new article and added new sub-article.

By Amanuel Tsegaye
HCBST 2016

An Ethiopian tax and customs law is characterized by frequent repeal and amendments. The
number of proclamations, regulations and directives makes it to some extent difficult to
understand this area of law(Abrham.Y,2011) therefore; we have compiled the main excise tax
proclamation No 309/2002 and the chat excise tax proclamation No 767/2012. Furthermore we
have added a phrase; new sub articles, repealed amended, and replaced the main excise tax
proclamation No 309/2002 in accordance with Amendments provided in Excise Tax
(Amendment) Proclamation No. 570/2008 and Proclamation No. 610/2008.

The proclamation has seven sections and 38 Articles. Section 1 General Section 2 The rate, base
and payment of excise tax Section 3 Collection enforcement Section 4 Appeal to procedure
Section 5 Administrative penalties Section 6 Criminal offences Section 7 Miscellaneous
provisions

2. DISCUSSION

Section 1 general

Purposes of excise tax

Besides the revenue generation tool, there are basically two reasons why the excise tax is levied
by the Ethiopian government.

1. To impose on luxury goods and basic goods which are demand inelastic.

2. To reduce the consumption of goods those are hazardous to the health and cause social
problems by imposing the excise tax.

Scope of the excise tax

In Ethiopia, the excise tax is levied only on mentioned under the schedule of the proclamation
and on goods which specifically pronounced like chat.

The reference to the “Federal Inland Revenue Authority” is repealed and replaced by the
“Ethiopian Revenues and Customs Authority”. So the tax authority is Ethiopian customs and
revenue Authority ERCA

SECTION 2 The Rate, Base and Payment of Excise Tax

Rate of Excise Tax


By Amanuel Tsegaye
HCBST 2016

A. The excise tax shall be paid on goods mentioned under schedule of the proclamation

1. When imported

2. When produced locally at the rate prescribed in the schedule.

B. Chat locally produced and to be supplied for sale or destined for sale shall be charged at a tax
rate of Birr 5 (Five Birr) per kilogram.

Base of excise Tax:

1. In respect of goods produced locally, the cost of production;

2. In respect of goods imported, cost, insurance and freight (CIF value)

Duty to Pay Tax

1. In respect of goods produced locally, by the producer;

2. In respect of goods imported, by the importer

3 In respect of chat, Any person who possessing, carrying or otherwise handling chat for sale
or destined for sale shall be liable to pay the tax levied under the chat Proclamation.

Time of Payment

A. According to the excise tax proclamation, excise tax on goods shall be paid under the
schedule

1. When imported at the time of clearing the goods from customs area;

2. When produce locally, not later than 30 days from the date of production.

3. Exceptionally at the time they are being removed from the Bounded warehouse where

I. The tax payer requests for permission to deposit goods produced in a bonded warehouse
without payment of tax and if the request is approved by the Tax Authority or

II. The Tax Authority believes that the activity of the taxpayer requires a Bonded
Warehouse may give him permission to establish such Bonded Warehouse

B. in case of chat exporters, on a monthly basis after the export took place.
By Amanuel Tsegaye
HCBST 2016

Place of Collection of chat of the Tax The place of collection of the tax levied in
accordance with this Proclamation shall be determined by the Tax Authority in consultation
with the concerned regions.

Assessment of the Excise Tax

 If the Tax Authority accepts that the books and records maintained by the producer are
properly kept and that the monthly declaration submitted by him, is correct the tax paid in
accordance with the monthly declaration shall be considered accurate.

 If, after review by the Tax Authority, it appears that a person has understated his tax
obligation, the Authority shall issue an additional assessment.

 The assessment made shall be prepared in an assessment notification and be delivered to


the taxpayer. Delivery of the assessment notification shall be made in accordance with
the provisions of Income Tax Proclamation.

 In calculating the Excise Tax payable on textile and textile products locally produced in a
factory and vehicles assembled locally, the tax paid on import of inputs that are used to
produce such goods shall be deducted

SECTION 3. Collection enforcement

Obligations of the Tax Payer

 Maintain books of accounts and supporting. Documents in accordance with proper


accounting principles and in a manner acceptable to the Tax Authority:

 Submit every 30 days to the Tax Authority, in a form which shall be supplied by said
Authority, a declaration containing such information as may be necessary for proper
collection of tax.

 Pay in full the tax due with 30 days from the date of termination where such business is
termination.

 Comply with all the requirements of the tax authority about the inspection of the
premises.

By Amanuel Tsegaye
HCBST 2016

Power of the Tax Authority

 Requiring the person or any employee who has access to or custody of any information,
records or books of account, to attend during normal office hours at any reasonably
convenient tax office and answer any questions.

 Enter business premises or stores of the tax payer or to any place suspected to be storage
of the products, inspect, collect information and take appropriate measure

 Notify the tax payer the additional tax to be paid

Seizure of Property to Collect Tax

 It is the right to the tax authority to enforce the collection of tax including Seizure of
Property to collect tax, and have the right to sell the seized gods at public auction or in
any other manner approved by the Authority not less than 10 days after the seizure,
except that when the goods seized are perishable, the Authority can sell the goods after
any reasonable period having regard to the nature of the goods.

 Whenever any property on which seizure had been made is not sufficient to satisfy the
claim for which seizure is made, the Authority may, thereafter and as may be necessary,
proceed to seize other property liable to seizure of the person against whom the claim
exists until the amount due from such person, together with all expenses, is fully paid

 If the Authority makes a finding that the collection of the tax is in jeopardy, demand for
immediate payment of such tax may be made by the Authority and, on failure or refusal
to pay the tax, collection thereof by seizure shall be lawful without regard to the 30 days
period

Taxpayer Safeguards

 Any property seized shall be seized, held, and accounted for only by the Authority. No
other agency of the government may require the property seized under this Section to be
transferred or given over to it for any cause whatsoever. If any property seized under this
Section is sold, any portion of the proceeds in excess of the persons liabilities shall be
returned promptly to the owner of the property

By Amanuel Tsegaye
HCBST 2016

Notification of Changes

 Every taxpayer shall notify the Authority, in writing, of any change in the name, address,
place of business, constitution, or nature of the principal taxable activity or the activities
of the person; and any change of address from which, or name in which, a taxable activity
is carried on by the taxpayer, within 5 days of the change occurrin

SECTION 4. Appeal procedures

Review Committee

 Members of the Review Committee shall be appointed by the Minister of Revenue or the
competent authority of the regional government, as appropriate, upon the
recommendation of the head of the Authority.

 The Review Committee shall be accountable to the head of the Authority

 Duties of the review comitte :- to examine and decide on all applications submitted by tax
payers for compromise of penalty and interest and on the tax assessed, to gather any
written evidence or information relevant to the matter submitted; to summon any person
who directly or indirectly has dealt with the assessment, to appear before it for
questioning him about the case under its investigation; and to review determinations
made by the Authority for accuracy, completeness, and compliance with this
Proclamation.

 The Committee shall only review applications submitted to it within 10 days of receipt of
tax assessment notification.

Waiver of Penalty

 Administrative penalties may be waived in accordance with directives issued by the Tax
Authority. The administrative penalties to be waived may not include the interest

Appeal

 Any person who objects to an additional assessment made by the Authority has the right
to appeal, within 30 days from the receipt of that assessment notification or from the date

By Amanuel Tsegaye
HCBST 2016

of decision of the Review Committee to the Tax Appeal Commission by depositing in


cash with the Authority an amount equal to 50% of the additional tax assessed.

 If after the additional assessment, Tax Appeal Commission determines his tax liability,
that person is in default unless he pays the additional assessment determined by the Tax
Appeal commission or appealed against its decision within thirty (30) days of the
decision of the Commission.

 If no appeal is made within thirty days, the Additional assessment of the tax made by the
Authority shall be deemed to be correct and final and shall be immediately payable

Burden of Proof

 The burden of proving that an assessment is excessive or that a decision of the Authority
is wrong is on the person objecting to the assessment or decision

SECTION 5 Administrative penalties

Penalties for Late Filing

 Except as otherwise provided in this Proclamation, a person who fails to file a timely
return is liable for a penalty equal to 5 percent of the amount of tax underpayment for
each month during which the failure continues, up to 25 per cent of such amount

 The above penalty is limited to 50,000 Birr for the first month in which no return is filed.

 For purposes of this Article, an underpayment of tax is the difference between the tax
required to be shown on the return and the amount of tax paid by the due date.

 In any event the penalty may not be less than the smaller of the amounts:

 10,000, Birr;

 l00m percent of the amount of tax required to be shown on the return

Late Payment Interest

 If any amount of tax is not paid by the due date, the person liable is obliged to pay
interest on such amount for the period from the due date to the date the tax is paid.

By Amanuel Tsegaye
HCBST 2016

 The interest rate under is set at 25% (twenty five per cent) over and above the highest
commercial lending interest rate that prevailed during the preceding quarter

SECTION 6. Criminal offences

Procedure in Tax Offence Cases

 A tax offence under this Section is a violation of the criminal law of Ethiopia and shall be
charged, prosecuted, and appealed in accordance with Ethiopia Criminal Procedure
Code of Ethiopia.

Tax Evasion

 A person who evades the declaration or payment of tax, commits an offence and, in
addition to any penalty under Section 5, may be prosecuted and, on conviction, be
subject to a term of imprisonment of not less than five (5) years.

Making False or Misleading Statements

 A taxpayer who, makes a statement to a tax officer of the Authority that is false or
misleading in a material particular, or omits a statement made to an officer of the
Authority any matter or thing without which the statement is misleading in a material
particular commits an offence and is liable on conviction..

 Where the statement or omission is made without reasonable excuse, and

 if the inaccuracy of the statement were undetected may result in an under


payrnent of tax by an amount not exceeding 1,000 Birr, to a fine of not less.than
10,000 Birr and not more than 20,000 Birr, and imprisonment for a term of not
less than One (1) year and not more than three (3) years, and

 if the underpayment of tax is in an amount exceeding 1,000 Birr to a fine of not


less than 20,000 Birr and not more than 100,000 Birr and imprisonment for a
term of not less than three (3) years and not more than five (5) years,

 Where the statement or omission is made knowingly or recklessly

By Amanuel Tsegaye
HCBST 2016

 and if the inaccuracy of the statment were undetected may result in an


underpayment of tax by an amount not exceeding 1,000 Birr, to a fine of not
less than 50,000 Birr and not more than 100,000 Birr, or imprisonment for a
term of not less than five (5) years and not more than ten (10) years; and

 If the underpayment of tax is in an amount exceeding 1,000 Birr, to a fine of


not less than 75,000 Birr and not more than 200,000 Birr or imprisonment for a
term of not less than ten(10) years and not more than fifteen (15) years

Failure to Notify

 A person who fails to notify the Authority of a change as required by Article 14


commits an offence and is liable on conviction

 where the failure was made knowingly or recklessly, to a fine of not less than
10,000 Birr and to imprisonment for one year; or

 in any other case, to a fine of not less than 5,000 Birr and to imprisonment for
six months

Offences by Tax Officer

 Any tax officer or former taxation officer employed in carrying out the provisions of
this Proclamation who:

 directly or indirectly asks for, or receives in connection with any of the


taxation officer's duties, a payment or reward, whether pecuniary or otherwise,
or promise or security for that payment or reward, not being a payment or
reward which the officer is lawfully entitled to receive, or

 enters into or acquiesces in an agreement to do or to abstain from doing,


permit, conceal, or connive at any act or thing whereby the tax revenue is or
may be defrauded or which is contrary to the proper execution of the taxation
officer's duty

Commits an offence and is liable on convection to a fine of not less than 50.000 birr and to
imprisonment for a term of not less than ten years and not more than twenty (20) years,

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HCBST 2016

 except such information is required by the commercial Code of Ethiopia to be


published in the trade Gazette, who,

 discloses to any person or that person‟s representative, any matter in respect


of another person, that may, in the exercise of the taxation officer's powers or
the performance of the taxation officer's duties under the said provisions,
come to the taxation officer's knowledge; or

 permits any other person to have access to records in the possession or


custody of the Authority, except in the exercise of the taxation officer's
powers or the performance of the officer's duties under this Proclamation or
by order of a court;

Commits an offence and is liable on conviction to a fine of not less than 10,000 Birr and to
imprisonment for a term of not less than two (2) years and not more than five (5) years.

Unauthorized Tax Collection

 Any person not authorized to collect tax under this Proclamation who collects or
attempts to collect tax(or an amount the person describes as tax)

Commits an offence and is liable on conviction to a fin of not less than 50,000 Birr and to
imprisonment for a term of not less than five years and not more than ten years

Aiding or Abetting

 A person who aids, abets, incites, or conspires with another person to commit a
violation of this Proclamation also commits a violation of this Proclamation. That
person may be subject to prosecution and is liable on conviction, to a fine and
imprisonment, not in excess of the amount of fine or period of imprisonment provided
for the offence aided or abetted

Offences by Entities

 Where an entity commits offence, every person who is a manager at that time is
treated as also having committed offence and is liable to a fine and imprisonment in
this proclamation.

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HCBST 2016

 where an entity commits an offence by failing to pay an amount of tax, including an


amount treated by this Proclamation as though it were tax, every person who was a
manager of that entity at that time or was a manager within six months prior to the date
of commission is jointly and severally liable with that entity and that other person to
the Authority for the amount unless the offence is committed without that person's
knowledge or consent; and that person has exercised the degree of care, diligence and
skill that a reasonably prudent person would have exercised in comparable
circumstances to prevent the commission of the offence.

Directives

According to directive no 18/2009 the excise tax on excisable goods stated in the proclamation,
when produced locally shall be paid within 30 days on the following month of production.

In calculating excise tax payable on textile and textile products produced in a factory, vehicles
assembled locally, the tax paid on import of material inputs shall be deducted.

Directive no 85/2013 provides authority for local authorities to collect local chat excise tax and
responsibilities to local authorities to register local chat providers, and to tax them 5 birr per
kilogram

Summary

Excise tax in Ethiopia is imposed and payable on selected goods, such as, luxury goods and basic
goods which are demand inelastic. Moreover, it is believed that imposing the tax on goods that
are hazardous to health and which are cause to social problem, will reduce the consumption of
such goods.

The Ethiopian customs and revenue authority is responsible for collecting excise taxes and also
has power for enforcement of collection, Seizure of Property to Collect delinquent Tax,
assessment of tax, ask any related information and so on.

The tax payer on the other hand is anyone who produces or imports the goods stated on the
annex of the proclamation and has a duty to pay tax accordingly, maintain books of accounts,
assist the authority in any case and provide necessary information unrestrictedly and also the tax
payer has the right to appeal and appeal or appeal against its decision and object the additional

By Amanuel Tsegaye
HCBST 2016

assessment made by the Authority within 30 days by depositing in cash with the Authority an
amount equal to 50% of the additional tax assessed.

There are administrative penalties for late fillings and criminal offences for tax evasion, false or
misleading statements, obstruction of tax administration and failure to notify. Criminal offences
are violation of the criminal law of Ethiopia and shall be charged, prosecuted, and appealed in
accordance with Ethiopia Criminal Procedure Code of Ethiopia

Key words

 Bonded warehouse

 Tax evasion

 Seizure of Property

References

Excise tax Proclamation No. 307/2002, 570/2008, 610/2008 and directive no 18/2009.

Sales and excise tax proclamation no 68/1993, 77/1997, 149/1999, 228/2001 and 237/2001

Chat excise tax proclamation No 767/2012 and directive no 85/2013.

Fikadu asfaw, (2013) “the direct and indirect taxes applicable in Ethiopia”. Addis Ababa

Abraham Yohannes (2011), “The Ethiopian tax and customs law”- a blog about Ethiopian law

Abebe Hunachew, “Imports and taxes in Ethiopia” training manual on Taxpayers Education and
Communication

"Excise taxes." The Columbia Encyclopedia, 6th ed. 2016. Encyclopedia.com. retrieved on 28
Apr. 2016 <http://www.encyclopedia.com>

By Amanuel Tsegaye