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December 1, 2022
2022-1786

Ethiopia introduces social welfare levy on imported goods

  • Ethiopia's Council of Ministers passed a new Social Welfare Levy on Imported Goods under Regulation Number 519/2022 published in the Federal Negarit Gazette on 22 August 2022.
  • The regulation, which came into effect on 6 August 2022 and was recently released to the public, is intended to expand Ethiopia's tax base. The revenue collected will specifically be utilized for social welfare services like education and healthcare.
  • Importers of goods into Ethiopia should assess whether their activities are impacted by this regulation and ensure compliance.

Executive summary

Ethiopia has introduced a Social Welfare Levy on Imported Goods under Regulation Number 519/2022, which came into effect on 6 August 2022 and was published in the Federal Negarit Gazette on 22 August 2022. The regulation was issued by the Council of Ministers in accordance with Article 4 of the International Convention on the Harmonized Commodity Description and Coding System Ratification Proclamation Number 67/1993.

This regulation applies to imported goods. The additional revenue that will be collected has been earmarked for the rehabilitation and construction of education, training and medical facilities and the expansion of other social services.

This is an interesting development following the Investment Incentive Regulation Number 517/2022, that sought to encourage investments by providing for the duty-free importation of capital goods for new investments.

Detailed discussion

Overview

Taxes applicable to imported goods in Ethiopia include the import duty, withholding tax at a 3% fixed rate, excise tax if applicable, value-added tax at a fixed rate of 15%, and surtax at a fixed rate of 10%, except for goods exempted under applicable laws. The social welfare levy on imported goods regulation has expanded the range of taxes applicable to imported goods.

Nature of the Social Welfare Levy

The social welfare levy will be imposed on all goods imported into Ethiopia specified in the Customs Tariffs, with the exception of those outlined in Article 6 of the Regulation. This tax shall be levied at the rate of 3% on the aggregate of cost, insurance, and freight value. It is noteworthy that this tax will be in addition to other applicable taxes and custom duties.

Additionally, the social welfare levy will not serve as a base for any other tax imposed on imported goods.

Social Welfare Levy exemptions

The regulation exempts from the ambit of the social welfare levy:

  • Persons and organizations with diplomatic privileges
  • Goods subject to the sur-tax imposed in accordance with the Import Sur-tax Council of Ministers Regulation Number 133/2007
  • Goods excluded by a Directive of the Ministry of Finance as a result of socio-economic reasons

Other compliance matters

With respect to the calculation of the social welfare levy, its collection and criminal liability, the provisions of the Customs Proclamation Number 859/2014 (as amended) and its regulations shall apply.

Next steps

Importers should assess how the Regulation may impact their trading activities in Ethiopia. Moreover, they should ensure compliance with these new legal developments to mitigate possible penalties.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young (Kenya), Nairobi

Ernst & Young Société d'Avocats, Pan African Tax – Transfer Pricing Desk, Paris

Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London

Ernst & Young LLP (United States), Pan African Tax Desk, New York

 

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