Business Minister targets fourfold increase in excise tax revenue with stamps
May 20, 2023
The Ministry of Finance plans to increase excise tax revenue three to four times through the implementation of excise stamps and an advanced excise management system. It aimed at improving traceability and tracking of excise goods, enabling higher revenue collection.
The Ministry is currently selecting technology firms to provide solutions for the excise stamps.
Finance Minister Ahmed Shide told parliamentarians that his office is undertaking major tax reforms, with the introduction of excise stamps as a key development.
Implementing excise stamps could increase excise tax revenue by 300 to 400 percent, according to him.
For the current fiscal year, the approved budget aimed to collect approximately 35.2 billion birr in excise tax, with nearly 20 billion birr expected to come from domestically manufactured goods such as beer, soft drinks, sugar, and tobacco.
Presenting his Ministry’s nine-month performance report to the House of Peoples’ Representatives (HPR), Ahmed attributed lower revenue collection to a lack of traceability, tracking, and transparency of excise goods and services.
However, Ahmed remains confident that the stamps will improve the traceability of goods, yielding higher revenues. The Ministry is currently preparing directives to administer a traceability system for excise goods and services.
Parliament recently approved a revised excise tax proclamation, revising rates on some vehicles. For the Minister, the revisions aim to generate more revenue.
“Reducing the rate on some goods could generate up to seven billion birr additionally,” he said.
In a parliament discussion on the revised proclamation last March, State Minister of Finance Eyob Tekalign (PhD) said implementing the traceability system had fallen behind schedule.
Eyob also said implementing the excise stamps might prove costly, noting that “beer industries have complained that they will experience high costs stamping each of their products.”
In October last year, the government banned letters of credit to discourage imports of 38 goods also considered sin goods. The Minister announced this week that the country could lose about 30 billion birr from the decision: 20 billion birr from tax revenue and 10 billion birr from customs duties.
With the goal of increasing domestic revenue, the government has recently introduced its property tax collection plan.
HPR and the House of Federation mandated regional administrations to collect property taxes in a joint hearing earlier this year.
The potential revenues from this new tax are intended to help cities expand more rapidly and generate additional income to create more fiscal headroom. While the proclamation is being prepared federally by the Finance Ministry, regional administrations will have the power to collect.
“Property tax will vastly help the tax regime in general and increase the tax-to-GDP ratio,” Ahmed said.
The Value Added Tax (VAT) proclamation is also being revised to add more goods and services to the list, including telecommunication services. The Minister remains hopeful that revising the VAT proclamation alone could increase GDP by at least one percent.