History of Taxation in Ethiopia

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The history of taxes reveals that their coercive nature is of comparatively recent development. The
original idea of a tax was that payment was not obligatory upon the subject, but consisted rather as a
voluntary contribution toward the expenses of government, as appears from the Medieval Latin term
donum, and the English "benevolence." This conception of the relation between the subject and
government was gradually transformed; payment becoming more and more obligatory, until finally
coercive taxation resulted. At the present time payment of taxes is obligatory in all civilized nations;
where the rate or imposition is at all dependent upon the taxpayer, the tax takes the form of a fee or
payment for contractual services.

Resources were allocated among the various sectors of the economy differently in the imperial and
revolutionary periods. Under the emperor, the government dedicated about 36 percent of the annual
budget to national defense and maintenance of internal order. Toward the end of the imperial period,
the budgets of the various ministries increased steadily while tax yields stagnated. With a majority of the
population living at a subsistence level, there was limited opportunity to increase taxes on personal or
agricultural income. Consequently, the imperial government relied on indirect taxes (customs, excise,
and sales) to generate revenues. For instance, in the early l970s taxes on foreign trade accounted for
close to two fifths of the tax revenues and about one-third of all government revenues, excluding
foreign grants. At the same time, direct taxes accounted for less than one-third of tax revenues.

The revolutionary government changed the tax structure in 1976, replacing taxes on agricultural income
and rural land with a rural land-use fee and a new tax on income from agricultural activities. The
government partially alleviated the tax collection problem that existed during the imperial period by
delegating the responsibility for collecting the fee and tax on agriculture to peasant associations, which
received a small percentage of revenues as payment. Whereas total revenue increased significantly, to
about 24 percent of GDP in l988/89, tax revenues remained stagnant at around l5 percent of GDP. In
l974/75, total revenue and tax revenue had been l3 and 11 percent of GDP, respectively. Despite the
1976 changes in the tax structure, the government believed that the agricultural income tax was being
underpaid, largely because of under assessments by peasant associations.

The government levied taxes on exports and imports. In 1987 Addis Ababa taxed all exports at 2 percent
and levied an additional export duty and a sur-tax on coffee. Import taxes included customs duties and a
19 percent general import transaction tax. Because of a policy of encouraging new capital investment,
the government exempted capital goods from all import taxes. Among imports, intermediate goods
were taxed on a scale ranging from 0 to 35 percent, consumer goods on a scale of 0 to l00 percent, and
luxuries at a flat rate of 200 percent. High taxes on certain consumer goods and luxury items contributed
to a flourishing underground economy in which the smuggling of some imports, particularly liquor and
electronic goods, played an important part.
Although tax collection procedures proved somewhat ineffective, the government maintained close
control of current and capital expenditures. The Ministry of Finance oversaw procurements and audited
ministries to ensure that expenditures conformed to budget authorizations.

Current expenditures as a proportion of GDP grew from l3.2 percent in l974/75 to 26.1 percent in
l987/88. This growth was largely the result of the increase in expenditures for defense and general
services following the 1974 revolution. During the l977-78 Ogaden War, for example, when the Somali
counteroffensive was under way, defense took close to 60 percent of the budget. That percentage
declined after l979, although it remained relatively higher than the figure for the pre-revolutionary
period. Between l974 and l988, about 40 to 50 percent of the budget was dedicated to defense and
government services.

Economic and social services received less than 30 percent of government funds until l972/73, when a
rise in educational outlays pushed them to around 40 percent. Under the Dergue regime, economic and
social service expenditures remained at pre-revolutionary levels: agriculture's share was 2 percent, while
education and health received an average of l4 and 4 percent, respectively.

The Ethiopian Tax Reform of 2002

Since 1992/93, the Government of Ethiopia has made a major economic policy shift from Central
Planning to market oriented economic system. In line with this change, a series of tariff and tax reform
measures have been taken. The reasons to these were: outdated tariff and tax laws; weak customs and
tax administration; failure of the tariff and tax regime to attract investment, to facilitate trade and to
generate adequate revenue to cover current and capital expenditure, and hence finance development
and poverty reducing projects.

The series of tariff and tax reform programs have helped to increase both Federal Government and
national revenue. As per the reports of the Ministry of Revenue, the Federal Revenue has increased to
Birr 6.7 billion in 2002/2003 from Birr 2.54 billion in 1993/94 as the result of which federal revenue as
percentage of the GDP increased from 8.97% in 1993/94 to 11.87% in 2002/03. The increase in revenue
mainly attributes to the modest increase in both direct and indirect taxes, mainly the foreign trade
taxes. As well, National tax revenue as percentage of GDP has increased to 15.1% in 2002/03 from 10.9
in 1993/94. Despite, the series of reforms and increase in revenue, the overall budget deficit with and
without grant has been increasing. For example, the overall budget deficit without grants as percent of
GDP has increased from -5.2% in 1996/97 to -14.5% in 2002/03. This shows that performance of revenue
collection in Ethiopia has been low compared to the rest of Sub-Saharan African countries which is over
23% of the GDP.

Hence, coupled by a series of reduction in the import tariff, excise tax and income tax and widening of
the budgetary deficit, introducing a neutral and efficient tax, i.e. the VAT with broad tax base was
considered. Value Added Tax (VAT) has become a major tax instrument worldwide. The global trend to
introduce VAT in more countries is continuing. VAT has also become an indispensable component of tax
reforms in developing countries. Ethiopia's tax reform program has introduced VAT since January, 2003.
VAT revenue performance and its neutrality and efficiency are also the reasons for superiority of this tax
in contrast to other common tax instruments such as the turnover tax. The emerging conventional
wisdom, based largely on practice and numerous country case studies, suggests that a single rate VAT
(with the rate between 10 and 20%), with very few exemptions and, therefore, a broad base is superior
to a VAT with multiple rates and many exemptions which reduce its base and complicate
administrations. Ethiopia's standard VAT rate of 15% and 10% equalization for services and 2% for
goods have to be studied in the medium term whether or not they could broaden the tax base and
register high revenue performance. The three major taxes and their respective Tax Reforms are
explained below:

Taxes on Income and Profits

Tax on employment income used to be guided by Income Tax Proclamation No. 173/1961. In the 1990s,
this proclamation was amended with modifications to the legislation regulating income tax on
employment: rural land and agricultural income tax; rental income tax; taxes on business and other
profits; tax on income form mining activities; capital gains tax, and taxes on other sources of income
such as chance wining (which carries a tax rate of 15 per cent), royalties (with a tax rate of 5 per cent)
and tax on non-resident persons offering services in Ethiopia (which carries a tax rate of 10 per cent).

This reform resulted in a schedule for marginal tax rate which is currently being applied to income
exceeding Birr 150, the assumed minimum wage rate. Compared to the marginal tax rate of 89 per cent
during the military (Dergue) period; the current reform which reduced the maximum marginal tax rate
to 35 per cent was quite radical. The 1978 income tax for rural land and agricultural activities was also
amended in 1995 and 1997. For land use, farmers are now taxed Birr 10 for the first hectare and Birr 7.5
for each additional half hectare. Moreover, annual income exceeding Birr 1,200 is subject to a
progressive tax rate (as outlined in Appendix Table 1). The land use fee for state farms is Birr 15 per
hectare. A novel aspect of the latest tax policy concerning the agricultural sector is the fact that an
agricultural investor is exempted from income tax for two consecutive five-year periods. A progressive
marginal tax rate schedule was also enacted in 2002 for income derived from the rent of houses
(including manufacturing plants).

Taxes on Goods and Services

The reform in this category refers to Excise Tax Proclamation (No. 68/193, 77/1997, and No. 149/1999),
and the applicable tax rate ranges from a low of 10 per cent on textiles and television sets to 100 per
cent for alcohol, perfumes and automobiles. Sales tax on goods constitutes the second category and
these ranges from 5 per cent (mainly for agricultural goods) to 15 per cent. Many basic goods are
exempt from taxation. The reform also introduced a 5 per cent tax rate for work contracts and financial
services, while a 15 per cent rate is applied to the sale of other services. Valued-added tax (VAT) was
introduced in January 2003 and may mean a shift from Ethiopia’s dependence on foreign to domestic
trade, but it is too early to evaluate its impact. It is not, however, difficult to see that its implementation
is a challenge, owing to the predominance of small and informal operators in the country, its history of
tax evasion and corruption, lack of standard recordkeeping systems as well as the lack of knowledge
about VAT and a tax-base for its computation.

Taxes on International Trade

The reform of taxes on international trade relates to levies on imports (customs duty, import excise tax,
import sales tax) and tax on exports. The custom tariff reform that took place between 1993 and 2002
grouped imports into 97 categories based on the Harmonized System of Tariffs Classification Code. An
ad valorem rate ranging from 0 to 35 per cent was introduced. The same rates were applied for import
excise and sales taxes as those established for goods and services (see section above). An important
development in the export sector was the abolition of all export taxes, with the exception of coffee.
Similarly, to encourage exports, schemes for duty drawback and duty free imports were implemented
(see Appendix Table 1 for details).

Other miscellaneous tax-related reforms have been carried out in the last decade. These include the
amendment of stamp duties (Proclamation No. 110/1998); the introduction of a 3 per cent withholding
tax (Proclamation No. 227/2001), a 2 per cent withholding tax on income (Proclamation No. 227/2001),
as well as a 5 per cent withholding tax on interest income (Proclamation No. 227/2001).

Major Types of Taxes in Ethiopia

The major types of taxes that exist in Ethiopia, their meaning, rates and conditions, as provided by the
Federal Inland Revenue Authority, are presented as follows:

1. Value Added Tax (VAT)

This is a sales tax based on the increase in value or price of product at each stage in its manufacture and
distribution. The cost of the tax is added to the final price and is eventually paid by the consumer.

The rate and impose of VAT:

The rate of VAT is 15% of the value for every taxable transaction by a registered person, all imported
goods other than an exempt import and an import of services;

The export of taxable goods or services to the extent provided in regulations for zero tax rate are:

The export of goods or services to the extent provided in the regulation;

The rendering of transportation or other services directly connected with international transport of
goods or passengers, as well as the supply of lubricants and other consumable technical supplies taken
on board for consumption during international flights;

The supply of gold to the National Bank of Ethiopia; and

A supply by a registered person to another registered person in a single transaction of substantially all of
the assets of a taxable activity or an independent functioning part of a taxable activity as a going
concern, provided a notice in writing, signed by the transferor and transferee, is furnished to the
authority within 21 days after the supply takes place and such notice includes the details of the supply.

2. Excise Tax

This is imposed and payable on selected goods, such as, luxury goods and basic goods which are demand
inelastic. In addition, it is believed that imposing the tax on goods that are hazardous to health and
which are cause to social problems will reduce the consumption thereof. Excise tax shall be paid on
goods mentioned under the schedule of 'Excise Tax Proclamation No. 307/2002'(a) when imported and
(b) when produced locally at the rate prescribed in the schedule. Computation of excise tax is applied (a)
in the case of goods produced locally, production cost and (b) in the case of imported goods, cost,
insurance and freight /C.I.F./. Payment of excise tax for locally produced goods is by the producer and
for imported goods by the importer. Time of payment of excise tax for imported goods is at the time of
clearing the goods from the customs area, and for locally produced goods it is not later than 30 days
from the date of production.

3. Turnover Tax

This is an equalisation tax imposed on persons not registered for value-added tax to fulfil their
obligations and also to enhance fairness in commercial relations and to complete the coverage of the tax
system. Administrative feasibility considerations limit the registration of persons under the value-added
tax to those with annual transactions to the total value exceeding 500,000 Birr.

Rate of turnover tax is 2% on goods sold locally and 10% on others; as provided by the 'Excise Tax
Proclamation No. 307/2002'

4. Income Tax

Income taxable under the Ethiopian 'Income Tax Proclamation No. 286/2002' shall include, but not be
limited to:

Income from employment;

Income from business activities;

Income derived by an entertainer, musician, or sports person from his personal activities;

Income from entrepreneurial activities carried out by a non-resident through a permanent

establishment in Ethiopia;

Income from movable property attributable to a permanent establishment in Ethiopia;

Income from immovable property and appurtenances thereto, income from livestock and inventory in
agriculture and forestry, and income from usufruct and other rights deriving from immovable property
that is situated in Ethiopia;

Income from the alienation of property referred to in (e);

Dividends distributed by a resident company;

Profit shares paid by a resident registered partnership;

Interest paid by the national, a regional or local Government or a resident of Ethiopia, or paid by a non-
resident through a permanent establishment that he maintains in Ethiopia;

License fees including lease payments, and royalties paid by a resident or paid by a non-resident through
a permanent establishment that he maintains in Ethiopia.

5. Business profit tax

Taxable business income of bodies is taxable at the rate of 30%

Taxable business income of other taxpayers shall be taxed in accordance

with the following expenses:

Sources of Ethiopian Tax Laws

Tax laws basically emanate from three sources; legislative, administrative and judicial sources. The
major sources of Ethiopian tax laws are legislative sources. There are a number of laws that have been
adopted by the legislature of the country to deal with the different types of taxes in the country and
their administration. The first law that can be taken as a source is the FDRE Constitution which has
numerous provisions dealing with the administration of taxes. Then after, there are a number of
proclamations and regulations dealing with taxes in the country, the most prominent of which include
Income Tax Proclamation No. 286/2002 (amended by (Pro.No. 608/2008) and (Pro.No. 693/2010));
Council of Ministers Income Tax Regulation No. 78/2002 (amended by (Reg. No. 164/2008)); Value
Added Tax Proclamation No. 285/2002 (amended by (Pro.No. 609/2008)); Council of Ministers Value
Added Tax Regulation No. 79/2002; Turnover Tax Proclamation No. 308/2002 (amended by (Pro.No.
611/2008)); and Excise Tax Proclamation No. 307/2002 (amended by (Pro.No. 570/2008) and (Pro.No.
610/2008)).

ETHIOPIA SALES AND EXCISE TAX PROCLAMATION No. 68/1993

Compiled November 1997

by Foreign Tax Law, Inc.

PO Box 2189

Ormond Beach, Florida 32175-2189 USA

tel. (904) 253-5785

fax (904) 257-3003

e-mail: [email protected]

Website: http://www.foreignlaw.com

DISCLAIMER: Though every effort has been made to present the legal texts and information accurately,
due to the nature and scope of the material, we cannot be liable for errors, omissions or other problems
in the texts. The material offered herein is not a substitute for competent legal assistance by a licensed
attorney of the jurisdiction in question.

SALES AND EXCISE TAX PROCLAMATION No. 68/1993 SECTION I. GENERAL 1. Short title. 2. Definition. 3.
Repeals. 4. Scope. SECTION 2. SALES TAX 5. Rate of Sales Tax. 6. Basis of Computation of the Sales Tax. 7.
Assessment of Tax. 8. Payment of Sales Tax.

9. Rebate of Tax Paid on Raw Materials. SECTION 3. EXCISE TAX 10. Rate of Excise Tax. 11. Basis of
Computation of Excise Tax. 12. Payment of Excise Tax. 13. Assessment of the Excise Tax. SECTION 4.
COMMON PROVISIONS (Sales and Excise Tax) 14. Obligations of the Taxpayer. (Sales and Excise Tax) 15.
Power of the Tax Authority. (Sales and Excise Tax) 16. Exemption. (Sales and Excise Tax) 17. Appeal.
(Sales and Excise Tax) 18. Penalties. (Sales and Excise Tax) SECTION 5. MISCELLANEOUS PROVISIONS
(Sales and Excise Tax) 19. Duty to Cooperate. (Sales and Excise Tax) 20. Offenses. (Sales and Excise Tax)
21. Powers of the Minister. (Sales and Excise Tax) 22. Transitory Provisions. (Sales and Excise Tax) 23.
Effective Date. (Sales and Excise Tax) SCHEDULE A. GOODS THAT SHALL BE LIABLE TO 5 PERCENT SALES
TAX WHEN EITHER PRODUCED LOCALLY OR IMPORTED SCHEDULE B. GOODS THAT SHALL BE FREE OF
SALES TAX WHEN EITHER PRODUCED LOCALLY OR IMPORTED, AND SALES TAX EXEMPTIONS PROVIDED
TO PUBLIC BODIES AND ECONOMIC AGENTS SCHEDULE C. TYPE OF SERVICES SUBJECT TO SERVICE TAX
UNDER ARTICLE 5 AND SUBARTICLE 3 OF THIS PROCLAMATION

SECTION I. GENERAL

1. Short title. This Proclamation may be cited as "Sales and Excise Tax Proclamation No. 68/1993".

2. Definition. In this Proclamation, unless the context otherwise requires: (1) "person" means a
physical or juridical person; (2) "goods" means any type of goods or commodity that has
exchange value, utility and brings about satisfaction and includes animals; (3) "sales" means
exchange of goods in cash or in kind and includes rendering services upon receipt of payment;
(4) "producer" means any person who manufactures or produces goods; (5) "raw material"
means goods that a producer uses as an input in the production process and shall include

goods that are to be mixed or fixed to other goods to bring about finished product; (6)
"importer" means any person who imports goods into the country; (7) "service" means services
enumerated under Schedule C of this Proclamation and regulations to be issued for the implementation
of this Proclamation. (8) "service supplier" means the person who renders the services referred
to in sub-article 7 of this Article; (9) "informal service rendering or production activity" means
providing services or producing goods outside business premises in residential houses, or on the
veranda or on street payments, and the sales income it generates is of a subsistence level and is carried
out without employees; (10) "Bonded Warehouse" means the building or place destined for
storage of specified goods before the tax is paid, secured in accordance with requirements of the Tax
Authority; (11) "Pure Alcohol" means alcohol of purity of 96 degrees or more. (12)
"Alcohol" means Ethyl Alcohol; (13) "Denatured alcohol" means alcohol of any form to which
has been added the substance or substances rendering it unfit for human consumption; (14)
"Tax Authority" means the body designated to collect revenues categorized as control, regional and joint
under Proclamation No. 33/1992; (15) "Tax Appeal Commission" means the Tax Appeal
Commission established by the Income Tax Proclamation or a body which may be established by other
laws to succeed it; (16) "Ministry" and "Minister" means the Ministry and Minister of Finance,
respectively;

3. Repeals. Sales Tax Council of State Special Decree No. 16/1990 is hereby repealed.
4. Scope. Unless exempted under Article 16 of this Proclamation or directives to be issued thereunder,
the tax shall be paid in accordance with the provisions of this Proclamation on: (1) goods
produced locally; (2) goods imported; and (3) services rendered locally.

SECTION 2. SALES TAX

5. Rate of Sales Tax. The Sales Tax shall be paid on: (1) Goods, gold locally and goods imported
mentioned under Schedule "A" of this Proclamation 5% (five percent) or fixed rate on the basis of
weight, as the case may be; (2) Goods sold locally and goods imported, except goods mentioned
under sub-article 1 of this Article and Schedule "B" 12% (twelve percent); (3) Service mentioned
under Schedule "C" of this Proclamation and in a directive to be issued in a public notice by the Minister:
(a) contractors and taxpayers whose daily sales income is between Birr 25-50 five percent (5%)
(b) others ten percent (10%).

6. Basis of Computation of the Sales Tax. (1) In respect of goods produced locally, the producers
wholesale price and the excise tax paid, as the case may be;

(2) in respect of goods imported, cost insurance and freight (C.I.F.) plus customs duty and the excise tax
paid, as the case may be;

(3) in respect of services, the service charge shall be the basis for the computation of the tax payable
thereon.

7. Assessment of Tax. (1) The Sales tax on goods imported shall be paid in accordance with sub-article 2
of Article 6.

(2) Where the taxpayer has the obligation to keep books of account and supporting documents, the
Sales Tax shall be assessed by the Tax Authority on the basis of such books of account and supporting
documents.

(3) The provisions of the Income Tax Proclamation No. 173/1961, concerning appeals shall mutatis
mutandis, apply to appeal regarding Sales tax.

(4) If for any reason the books of accounts and supporting documents are unacceptable to the Tax
Authority or if the taxpayer fails to submit same when requested by the Tax Authority or if no books of
account and supporting documents are maintained, the Tax Authority shall assess the tax on the basis of
information available to it or on the basis of wholesale price of such good in the local market or, if the
wholesale price is unknown on the basis of the wholesale price of an equivalent good;

(5) 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.

(6) If the Tax Authority fails to assess the tax and notify the taxpayer of the amount still due within five
years from the date of declaration and payment of the tax by the taxpayer in accordance with Article 8
of this Proclamation, the tax so paid shall be final and conclusive, without prejudice to the criminal
penalty imposed under Article 20 of this Proclamation. However, where the taxpayer conceals
information, the five years period of limitation shall not bar the Tax Authority from demanding the
payment of the additional tax due.

8. Payment of Sales Tax. (1) The Sales tax shall be paid within the time prescribed under sub-article 8 of
this Article: (a) in respect of goods produced locally by the producer; (b) in respect of
goods imported by the importer; and (c) in respect of services rendered locally by the person
rendering the service.

(2) Notwithstanding the provisions of sub-article 1 of this Article, where the Tax Authority has reason to
believe that the tax cannot effectively be collected at the level of the producer or importer, he may issue
directives to the effect that the collection of the tax shall be made at the level of the wholesaler or the
retailer without exceeding the amount collectable at the level of the producer or importer.

(3) Time of Payment:

(a) Where the taxpayer is a producer, service supplier, wholesaler or retailer, he shall pay the
tax on his daily sales income within three days from the date of the sales transaction. However, in any
event, the payment shall not be delayed later than five days. (b) Where the taxpayer is an
importer, he shall pay the tax simultaneously as the Customs duty.

(4) Where the tax paid by the taxpayer is found to be lesser than the tax assessed by the Tax Authority
the taxpayer shall forthwith pay the difference to the Tax Authority as soon as he receives the
assessment notification. Where the tax paid by the taxpayer is found to be more than the tax assessed,
the difference shall forthwith be paid back.
9. Rebate of Tax Paid on Raw Materials. (1) The Sales tax paid on raw materials used in the locally
produced goods shall be refunded. However, the tax paid on pure alcohol used as raw material shall not
be refunded.

(2) The procedure for refunding the tax paid on raw materials in accordance with sub-article 1 of this
Article shall be regulated by directives.

SECTION 3. EXCISE TAX

10. Rate of Excise Tax. The Excise tax shall be paid on goods mentioned under Schedule "D" attached to
this Proclamation: (a) when imported; (b) when produced locally at the rate prescribed
in the schedule.

11. Basis of Computation of Excise Tax. (1) In respect of goods produced locally, the cost of production;

(2) in respect of goods imported, cost, insurance and freight (C.I.F.).

12. Payment of Excise Tax. (1) The tax shall be paid within the time prescribed under sub-article 2 of this
Article: (a) in respect of goods produced locally, by the producer; (b) in respect of goods
imported, by the importer.

(2) Time of payment: (a) unless decided otherwise as provided for under sub-article 2(b) of this
Article the excise tax on goods specified under Schedule "D" shall be payable: 1. When
imported, at the time of clearing the goods from Customs area; 2. When produced
locally, not later than three days from the date of production. (b) Where the taxpayer 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, the payment of the tax on such goods so deposited shall be
effected at the time they are being removed from the Bonded Warehouse; (c) If the Tax
Authority believes that the activity of the taxpayer requires a Bonded Warehouse may give him
permission to establish such Bonded Warehouse. The conditions under which the Bonded Warehouse
operates, shall also

be laid down by directive to be issued by the Tax Authority. No goods shall therefore be deposited in or
removed from a Bonded Warehouse except in the presence and under the control of a representative of
the Tax Authority; (d) Where a producer fails to keep proper accounts and records or fails to
submit a monthly declaration or pay the tax within the time limit prescribed in this Proclamation or
submits a declaration which upon investigation is found incorrect, the Tax Authority shall be empowered
to forbid the producer to remove any goods from the place of production or Bonded Warehouse.
13. Assessment of the Excise Tax. (1) 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 pursuant to
Article 14(d) of this Proclamation is correct, the tax paid in accordance with the monthly declaration
shall be considered accurate.

(2) If the Tax Authority finds unsatisfactory the declaration submitted under sub-article 1 of this Article
or if it finds out within five years from the date of declaration that there is an amount due over and
above the declared tax, may assess the tax by estimation and demand the payment thereof. Without
prejudice to the criminal penalty imposed under Article 20 of this proclamation, however, where the
taxpayer conceals information, the five years period of limitation shall not bar the Tax Authority from
demanding the payment of the additional tax due.

SECTION 4. COMMON PROVISIONS (Sales and Excise Tax)

14. Obligations of the Taxpayer. (Sales and Excise Tax) In addition to the obligations specified in the
other provisions of this Proclamation, every taxpayer shall: (a) maintain books of accounts and
supporting documents in accordance with proper accounting principles and in a manner acceptable to
the Tax Authority; (b) submit 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 the
tax; (c) comply fully with the requirements of the inspection of his premises by the delegate of
the Tax Authority in accordance with sub-article 1 and 2 of Article 15 of this Proclamation; (d)
comply fully with the requirements of the inspection of his premises by the delegate of the Tax
Authority; (e) immediately communicate to the Tax Authority the type and address as well as
the commencement and termination date of his business and notify any subsequent change in the type
or address of such business; (f) pay in full the tax due within 30 days from the date of
termination where such business is terminated.

15. Power of the Tax Authority. (Sales and Excise Tax) In addition to the powers specified in the other
provisions of this Proclamation the Tax Authority shall have the following powers and duties: (1)
Order the taxpayer to submit books of accounts and supporting documents necessary for the
assessment of the tax or where necessary, require the taxpayer to be present in person and have
inspected or explain such books and documents. (2) Enter business premises or stores of the
taxpayer or to any place suspected to be storage of the products, inspect, collect information and take
appropriate measures: (a) during the regular working hours of the taxpayer where it
suspects that production or sale of goods is carried on or there is information that may be necessary for
the proper assessment of the tax, and to ensure the observance of this Proclamation and regulations
issued for the implementation of this Proclamation; (b) at any time where it suspects
that an offense resulting from the violation of the provisions of this Proclamation or regulations issued
for the implementation of the Proclamation has been committed. (3) Where it deems necessary,
delegate, upon approval of the Minister or the relevant regional executive
committee, a body to collect the tax; (4) Notify the taxpayer the tax to be paid in accordance
with this Proclamation; (5) As regards goods imported: (a) sell such goods
where the tax in respect of them is not paid within six months from the day of deposit within the
premises of government warehouse or in the case of perishable goods, decide on their sale at any time
it thinks fit; (b) transfer to the Government Treasury the balance, if any, remaining
after the deduction of the tax and other expenses, provided, however, that it shall pay the same person
entitled thereto where he claims it within five years from the date of the sale and where his claims are
proved.

16. Exemption. (Sales and Excise Tax) (1) Goods and services exempt from tax or which have reduced tax
rates under appropriate laws, international agreements approved by the Government or under
agreements consented to by the Minister shall be exempted.

(2) Persons engaged in informal service rendering or production activity and persons engaged in formal
trade, including sales of Tella, whose daily sales income does not exceed Birr 25 (twenty five birr), shall
be exempted.

(3) Goods locally produced for direct export shall be exempted.

(4) In addition to exemptions provided for in this Article, goods and services may be exempted by
directives to be issued by the Minister.

17. Appeal. (Sales and Excise Tax) (1) Any taxpayer who objects to an assessment made by the Tax
Authority has the right to appeal, within 30 days from the receipt of assessment notification, to the Tax
Appeal Commission by depositing in each with the Tax Authority an amount equal to 50% of the tax
assessed.

(2) If no appeal is made within the period prescribed under sub-article 1 of this Article, the assessment
of the tax made by the Tax Authority shall be deemed to be correct and final and shall be immediately
payable.

(3) Without prejudice to the provisions of sub-article 1 of this Article the provisions of the Income Tax
Proclamation, concerning appeals shall mutatis mutandis, apply to appeal regarding taxes imposed by
this Proclamation.
18. Penalties. (Sales and Excise Tax) Any taxpayer shall pay: (1) 20% of the Tax assessed, if he
fails to declare as provided for in this Proclamation; (2) Compound interest at the prevailing rate
on the amount in default where he fails to pay the tax within the period prescribed under this
Proclamation.

SECTION 5. MISCELLANEOUS PROVISIONS (Sales and Excise Tax)

19. Duty to Cooperate. (Sales and Excise Tax) (1) Any person has the duty to cooperate with the Tax
Authority in the implementation of this Proclamation.

(2) Without prejudice to the generality of duties provided for in sub-article 1 of this Article, the duty to
cooperate shall, in particular, include: (a) disclosure of the identify of the taxpayer, the nature
and condition of his business; (b) supply, in due time, of information necessary for the collection
of the tax; (c) notification forthwith of the issuance, renewal or cancellation of licenses.
(d) refraining from the supply of services to any person who fails to present tax clearance certificate, and
(e) rendering upon request by the Tax Authority technical and professional assistance necessary for the
collection of the tax.

20. Offenses. (Sales and Excise Tax) Unless the relevant provisions of the Penal Code impose greater
punishment: (1) Any taxpayer who, with the intention of evading or under paying the tax, makes
false declaration concerning his production activity, prices, service or sales or submits incorrect books of
accounts and supporting documents, or refuses to supply or conceals information necessary for the
assessment of the tax, or in any way obstruct or attempts to obstruct the work of the Tax Authority
shall, upon conviction by the court, be punishable: (a) with one year imprisonment and
Birr 5000 (Birr five thousand) fine, if the offense is committed for the first time; (b) with
two years imprisonment and Birr 10,000 (Birr ten thousand) fine, if the offense is committed for the
second time; (c) in addition to three years imprisonment and Birr 20,000 (Birr twenty
thousand) fine, his license shall be cancelled, if the offense is committed for the third time. (2)
Any person who fails to fulfill his duties under sub-article 1 and 2 of Article 19 of this Proclamation, shall
upon conviction by the court, be punishable with imprisonment not exceeding one year of with fine not
exceeding Birr 3000.

21. Powers of the Minister. (Sales and Excise Tax) The Minister shall have the power to: (a)
waive, for good cause in whole or in part, the tax assessed under this Proclamation; and (b)
issue directives for the better carrying out of this Proclamation and the regulation to be issued for the
implementation of this Proclamation.

22. Transitory Provisions. (Sales and Excise Tax) (1) All turn-over, transaction, and excise taxes due prior
to the coming into force of this Proclamation shall be paid in accordance with the relevant tax laws then
in force.
(2) Taxes that should have been paid in accordance with the Sales Tax Council of States Special Decree
No. 16/1990 but remain unpaid shall be collected in accordance with said Decree and directives issued
thereunder.

23. Effective Date. (Sales and Excise Tax) This Proclamation shall enter into force as of the 16th day of
August 1993.

SCHEDULE A. GOODS THAT SHALL BE LIABLE TO 5 PERCENT SALES TAX WHEN EITHER PRODUCED
LOCALLY OR IMPORTED 1. Live Animals 1.1 Live horses, asses, mules and hinnies

1.2 Live animals of the bovine species 1.3 Live swine 1.4 Live sheep and goats
1.5 Live poultry, that is to say, fowls, ducks, geese turkeys and guinea fowls 1.6 Other live
animals and birds 2. Meat and Edible Meat Offals 2.1 Meat and edible offals of the animals
falling within Article 1.1 to 1.4 fresh, chilled or frozen. 2.2 Dead Poultry (that is to say, fowls,
ducks, geese, turkeys and guinea-fowls) and edible offals thereof, fresh, chilled or frozen. 2.3
Other meat and edible meat offals, fresh chilled or frozen. 3. Fist, Crustaceans and Mollusc 3.1
Fish, fresh (live or dead), chilled or frozen. 3.2 Crustaceans & mollusks whether in shell or not,
fresh (live or dead), chilled, frozen, crustaceans in shell, simply boiled in water. 4. Mild and cream, fresh,
not concentrated or sweetened. 5. Birds' eggs and egg yolks, fresh, dried or otherwise preserved,
sweetened or not. 6. Natural Honey. 7. Products of Animal Origin, not Elsewhere specified or included.
7.1 Human hair, unworked, whether or not washed or scoured; waste of human hair. 7.2 Pigs'
hogs' and boars' bristles or hair; badger hair and other brush-making hair; waste of such bristles and
hair. 7.3 Horsehair and horsehair waste, whether or not put up on a layer or between two layers
of other material. 7.4 Guts, bladders and stomachs of animals (other than fish), whole and
pieces thereof. 7.5 Fish waste. 7.6 Skins and other parts of birds with their feathers or
down, feathers and parts of feathers (whether or not with trimmed edges) and down, not further
worked than cleaned, disinfected, or treated for preservation, powder and waste of feathers or parts of
feathers. 7.7 Bones and born-cores, unworked, defatted, simply prepared (but not cut to
shape), treated with acid or degelatinized, powder and waste of these products except for use as
fertilizers). 7.8 Horns, antlers, hooves, nails, claws and beaks of animals, unworked or simply
prepared but not cut to shape, and waste and powder of those products; whalebone and the like,
unworked or simply prepared but not cut to shape, and hair and waste of these products (except for use
as fertilizer). 7.9 Coral and similar substances, unworked or simply prepared but not otherwise
worked; shells unworked or simply prepared but not cut to shape, powder and waste of shells.
7.10 Natural sponges. 7.11 Ambergris, castoreum, civet and musk; cantharides; bile, whether or
not dried; or otherwise provisionally preserved, of a kind used in the preparation of pharmaceutical
products. 7.12 Semen, silk worm eggs. 7.13 Semen, silk worn eggs. 8. Lives Trees and
other Plants, Bulbs, Roots and the like; cut Flowers and Ornamental Foliage.

8.1 Bulbs, tubers, tuberous roots, corms, crowns and rhizomes, dormant in growth or in flower.
8.2 Other live plants, including trees, shrubs, bushes, roots, cuttings and slips. 8.3 Cut flowers
and flower buds of a kind suitable for bouquet or for ornamental purposes, fresh, dried bleached,
impregnated or otherwise prepared. 8.4 Foliage, branches and other parts (other than flower or
buds) of trees, shrubs, bushes and other plants, and mosses, lichens and grasses, being goods of a kind
suitable for bouquet or ornamental purposes, fresh, dried, dyed, bleached, impregnated or otherwise
prepared. 9. Edible Vegetables and Certain Roots and tubers. 9.1 Vegetables, fresh or chilled.
9.2 Dried leguminous vegetables, shelled, whether or not skinned or split, when imported for plant
breeding. 9.3 Manioc, arrowroot, salep, Jerusalem artichokes roots and tubers with high starch
or insulin content, fresh. 10. Edible Fruit and Nuts; Peel or Melons or Citrus Fruits. 10.1 Dates,
bananas, coconuts, Brazil nuts, cashew nuts, pineapples, avocados, mangoes, guavas and mangosteens,
fresh. 10.2 Citrus fruit, fresh. 10.3 Figs, fresh. 10.4 Grapes, fresh. 10.5
Nuts other than those falling within Article 10.1, fresh. 10.6 Apples, pears and quinces, fresh.
10.7 Stone fruit, fresh. 10.8 Berries, fresh. 10.9 Other fruit, fresh. 11. Coffee and Spices.
11.1 Coffee beans, raw. 11.2 Pepper of the genus "piper", pimento of the genus "Capsicum" or
the genus "pimenta". 11.3 Vanilla. 11.4 Cinnamon and cinnamon tree flowers.
11.5 Cloves (whole fruit, cloves and stems). 11.6 Nutmeg, mace and cardamoms. 11.7
Seeds of anise, badian, fennel, coriander, cumin, caraway and juniper. 11.8 Thyme, saffron and
bay leaves, other spices. 12. All Kinds of Cereals. 13. Products of the Milling Industry; Malt and Starohes,
Gluten, Inulin. 13.1 Cereal flours. 13.2 Cereal grouts and cereal meal; other worked
cereal grains (for example, rolled, flaked, polished, pealed or kibbled), but not further prepared); germ
of cereals, whole, rolled, flaked or ground. 13.3 Flour, meal and flakes of potato.

13.4 Malt, roasted or not including malt flour). 14. Oil Seeds and Oleaginous Fruit,
Miscellaneous Grains, Seeds and Fruit; Industrial and Medical Plants, Straw and Fodder. 14.1 Oil
seeds and oleaginous fruit, whole or broken. 14.2 Flours or meals of oil seeds or oleaginous
fruit, non-defatted, (excluding mustard flour). 14.3 Seeds, fruit and spores, of a kind used for
sowing. 14.4 Sugar beet, whole or sliced, fresh, dried or powdered; sugar cane. 14.5
Hop cones nd lupulin. 14.6 Plants and parts (including seeds and fruit) of trees, bushes, shrubs
or other plants, being goods of a kind used primarily in perfumery, in pharmacy, or for insecticidal,
fungicidal or similar purposes, fresh or dried, whole, cut crushed, ground or powdered. 14.7
Chicory roots, fresh or dried, whole or cut, unroasted, locust beans, fresh or dried, whether or not
kibbled or ground, but not further prepared, fruit kernels and other vegetable products of a kind used
primarily for human food, not falling within any other articles. 14.8 Cereal straw and husks,
unprepared, or chopped but not otherwise prepared. 14.9 Mangolds, swedes, fodder roots, hay,
lucerne, clover, sainfoin, forage kale, lupines, vetches and similar forage products. 15. Gums, Resin and
other Vegetable Saps and Extracts. 15.1 Shelled, seed lac, stick lac and other lacs. 15.2
Natural gums, resins, gum resins and balsams. 16. Vegetable Plating Materials, Vegetable Products not
Elsewhere Specified or included. 16.1 Vegetable materials of a kind used primarily for plaiting
for example cereal straw, cleaned, bleached or dyed osier, reeds, rushes, rattans, bamboos, raffia and
lime bark. 16.2 Vegetable materials, whether or not put up on a layer or between two layers of
other material, of a kind used primarily as stuffing or as padding (for example, kapok, vegetable hair and
eel-grass). 16.3 Vegetable materials, of a kind used primarily in brushes or in brooms (for
example, sorgho pissava, couchgrass and istle, whether or not in bundles or hanks. 16.4 Raw
vegetable materials of kind used primarily in dyeing or in tanning. 17. Cocoa. 17.1 Cocoa beans,
whole or broken, raw or roasted. 17.2 Cocoa shells, husks, skins and waste. 18. Infant or Invalid
Food, of any Origin. 19. Earth, Stone and Limestone. 19.1 Natural sands of all kinds whether or
not colored, other than metal bearing sands. 19.2 Quartz, quartzite, including quartzite not
further worked than roughly split. 19.3 Clay. 19.4 Granite, prophry, basalt, sandstone
and other monumental and building stone,including such stone not further worked than roughly split,
roughly squared or squared by sawing. 19.5 Pebbles and crushed or broken stone, gravel,
macadam and trarred macadam, of kind commonly used for concrete aggregate, for road metalling and
the like. 19.6 Limestone flux and calcareous stone, commonly used for the manufacture of lime
or cement.

20. Pharmaceutical Products. 20.1 Organo-therapeutic glands or other organs, dried, whether or
not powdered; organo-therapeutic extracts of glands or other organs or of their secretions; other animal
substances prepared for therapeutic or prophylactic use, not elsewhere specified or included.
20.2 Antisera; microbial vaccines, toxines, microbial cultures (including ferments but excluding yeasts)
and similar products. 20.3 Medicaments (including veterinary medicaments). 20.4
Wadding, gauze, bandages and similar articles (for example, dressings, adhesive plasters, poultices),
impregnated or coated with pharmaceutical substances or put up in retail packings for medical or
surgical purposes. 20.5 Essential oils for use as medicine. 20.6 Other pharmaceutical
good. 21. Hides and Skins. 21.1 Raw hides and skins (fresh, salted, dried, pickled or limed),
whether or not split, including sheepskins in the wool. 21.2 Raw fur skins. 22. Printed Books,
Newspapers, Picture & Other Products of the Printing Industry; Manuscripts, typescripts and Plans.
22.1 Printed books, booklets, brochures, pamphlets and leaflets. 22.2 Newspapers journals and
periodicals, whether or not illustrated. 22.3 Children's picture books and painting books.
22.4 Music, printed or in manuscript, whether or not bound or illustrated. 22.5 Maps and
hydrographic and similar charts of all kinds, including atlases, wall maps and topographical plans,
printed globes (terrestrial or celestial). 22.6 Plans and drawings for industrial, architectural,
engineering, commercial or similar purposes, whether original or reproductions on sensitized paper,
manuscripts nd typescripts. 22.7 Cheque books (but not travellers' cheques), lottery tickets.
22.8 Transfers (Decalcomanias). 23. Cotton. 23.1 Cotton, not carded or combed. 23.2
Cotton linters. 23.3 Cotton waste (including pulled or garnetted rags), not carded or combed.
23.4 Cotton, carded or combed. 24. Works of Art, Collectors' Pieces and Antiques. 24.1
Paintings, drawings and pastels, executed entirely by hand, other than for permanent public exhibition.
24.2 Original engravings, prints and lithographs, other than for permanent public exhibition.
24.3 Original sculptures and statuary, in and material, other than for permanent public exhibition.
24.4 Postage, revenue and similar stamps (including stamp postmarks and franked envelopes, letter
cards and the like),used, or unused not of current or new issue in the country to which they are
destined. 24.5 Collections and collectors' pieces of zoological, botanical, mineralogical,
anatomical, historical, archeological paleontological, ethnographic or numismatic interest.

24.6 Antiques of an age exceeding one hundred years. 25. Goods Subject to 5% Sales Tax as
Exception. 25.1 Sales of food, tea and coffee, etc., in hotels other than lodging services and sales
or drinks and other goods on which the tax has been paid at the place of production. 25.2 Sales
of food, tea and coffee, etc., in workers canteens, other than sales of drinks and other goods on which
the tax has been paid at the place of production. 25.3 Sales of Tea rooms and Bars other than
sales of drinks and other goods on which the tax has been paid at the place of production. 25.4
Sales of local food and beverages. 25.5 Sales of home prepared foodstuff. 26. Goods that Shall
be Subject to Sales Tax of Birr 10 Per kg. 26.1 Clothing, clothing accessories, travelling rugs and
blankets, household linen and furnishing articles of textile materials, footwear, belts & headgear of any
material, showing signs of appreciable wear. 26.2 Used or new rags, scrap twine, cordage, rope
and cables and worn out articles of twine cordage, rope or cables, of textile materials.

SCHEDULE B. GOODS THAT SHALL BE FREE OF SALES TAX WHEN EITHER PRODUCED LOCALLY OR
IMPORTED, AND SALES TAX EXEMPTIONS PROVIDED TO PUBLIC BODIES AND ECONOMIC AGENTS 1.
Food. 1.1 Bread and "Injera". 2. Fertilizer. 2.1 Bones, horns, hooves, nails and other
products of animal origin for use as fertilizer. 2.2 Guano and other natural fertilizer of animals or
vegetable origin. 2.3 Natural calcium phosphates, natural aluminum calcium phosphates,
apatite and phosphatic chalk and the like for use as fertilizer. 2.4 Nitrogenous, phosphatic,
potassic mineral or chemical fertilizers. 3. Petroleum and Petroleum Products. 3.1 Aviation fuel,
oils and lubricants. 3.2 Any type of kerosene. 4. Containers, wrapping and other packing
materials when sold in the market after the goods contained within are unloaded. 5. Aircraft and Parts
Thereof, Machinery and Requisites Needed for Aviation. 5.1 Aircraft and parts thereof and
accessories thereto. 5.2 Aircraft launching gear; ground flying trainers; parts of any of the
foregoing articles. 5.3 Ballons and airship. 5.4 Flying machines, gliders and kites;
rotochutes; parts of any of the foregoing articles. 5.5 Parachutes and parts thereof and
accessories thereto. 5.6 Radio telegraphic and radio telephonic transmission apparatus for use
in aircraft and airfields. 5.7 Other equipment requisites needed for aviation.

6. Equipment Requisites for Railway and Tramway Transport. 6.1 Electric rail locomotives,
battery operated or powered from an external source of electricity. 6.2 Other rail locomotives;
tenders. 6.3 Mechanically propelled railway and tramway coaches, vans and trucks, and
mechanically propelled track inspection trolleys. 6.4 Railway and Tramway passenger coaches
and luggage vans; hospital coaches, prison coaches, testing coaches, travelling post office coaches and
other special purpose railway coaches. 6.5 Railway and tramway rolling stocks, the following
workshops, cranes and other service vehicles. 6.6 Railway and tramway goods vans, goods
wagons and other trucks. 6.7 Containers specially designed and equipped for carriage by one or
more modes of transport. 6.8 Parts of railway and tramway locomotives and rolling stock.
6.9 Railway tramway track fixtures and fittings; mechanical equipment, not electrically powered, for
signalling to or controlling road, rail or other vehicles, ships or aircraft, parts of the foregoing fixtures,
fittings or equipment. 6.10 Railway and tramway sleepers. 6.11 Fuels for ruse in railway
or tramway transport. 6.12 Other equipment, requisites for use in railway and tramway
transport. 7. Equipment Requisites for Marine Transport. 7.1 Ships. boats and other vessels for
commercial services and harbor utility; parts of the foregoing articles. 7.2 Vessels specially
designed for towing (tugs) or pushing other vessels. 7.3 Light vessels, fire floats, dregers of all
kinds, floating cranes, and other vessels the navigability of which is subsidiary to their main functions;
floating docks or submersible drilling or production platforms. 7.4 Floating structures other than
vessels (for example coffer dams, landing stages, buoys and beacons). 7.5 Lighthouse lenses and
other optical elements specialized for navigational aids. 7.6 Radio telegraphic and radio
telephonic transmission apparatus for use in harbors or commercial ships. 7.7 Bilge or other
pumps for commercial services and harbor utility vessels of boats. 7.8 Other equipment
requisites needed for commercial services and harbor utility. 7.9 Fuels. 8. Equipment Requisites
for national Defence and Public Security. 8.1 Warships. 8.2 Tanks and other armored
fighting vehicles, motorized, whether or not fitted with weapons; parts of such vehicles. 8.3 All
kinds of arms, ammunition and parts thereof for the use of Armed Forces. 8.4 Other vehicles
and communication equipment for national defence purposes. 8.5 Arms, ammunition,
communication equipment and other equipment requisite for public security purposes. 9. Fire Fighting
Appliances for Public Use. 9.1 Fire engines and fire escapes. 9.2 Pilings and tubing
specially prepared for fire fighting equipments.

9.3 Firemen's helmets. 9.4 Asbestos clothing. 9.5 Other fire fighting appliances
and equipment requisites for fire fighting. 10. Bullion Imports by the National Bank of Ethiopia.
10.1 Gold bullion. 10.2 Silver bullion. 11. Coins - Legal Tender in Ethiopia. 12. Travellers
Cheques, Revenue Stamps and Tax Bandlets. 13. Ambulances in a complete State. 14. Invalid Carriages,
Whether or not Motorized or Otherwise Mechanically Propelled. 15. Special Equipment for
Handicapped. 16. Photographs, Enlargements and Reproductions Having Only a Personal of Sentimental
Value and not Intended for Sale. 17. Works of arts, Collectors' Pieces and Antiques. 17.1
Paintings, drawings and pastels, executed entirely by hand imported for permanent public exhibition.
17.2 Original engravings prints and lithographs imported for permanent public exhibition. 17.3
Original sculptures and statuary, in any material imported for permanent public exhibition.

SCHEDULE C. TYPE OF SERVICES SUBJECT TO SERVICE TAX UNDER ARTICLE 5 AND SUB-ARTICLE 3 OF THIS
PROCLAMATION No. Type of Service 1. Telecommunication 2. Garage 3.
Laundry 4. Tailoring 5. Legal Service 6. Translation 7. Photography and
Photocopy 8. Auditing 9. Works Contract 10. Lodging 11. Consultancy 12.
Commission Agent 13. Cinema 14. Hair dressing and Beauty Salon 15. Tourism 16.
Rent of Goods