Executive summary

Ministry of Finance (MOF) has issued a new directive No. 1006/2024 with list of exempt goods in addition to the lists on VAT Proclamation No.285/2002 (as amended) and VAT regulation No.79/1995.

The new directive also excluded all goods and services that have previously been exempt through various directives issued or decisions made by the MOF. Such goods will now be subject to VAT at the standard rate of 15%.

Detailed discussion

Retained exemptions

The new directive indicated that it has retained the list of exempt goods provided on Article 8(2) of the VAT Proclamation 285/2002 and Article 19-33 of the VAT regulation 79/1995 for locally produced goods and imports. The list of exempt goods and services in the VAT Proclamation include:

• The sale or transfer of a used dwelling, or the lease of a dwelling
• The rendering of financial services
• The supply or import of national or foreign currency (except for that used for numismatic purposes), and of securities
• The import of gold to be transferred to the National Bank of Ethiopia
• The rendering by religious organizations of religious or church related services
• The import or supply of prescription drugs specified in directives issued by the Minister of Health, and the rendering of medical services
• The rendering of educational services provided by educational institutions, as well as childcare services for children at preschool institutions
• The supply of goods and rendering of services in the form of humanitarian aid, as well as import of goods transferred to state agencies of Ethiopia and public organizations for the purpose of rehabilitation after natural disasters, industrial accidents and catastrophes
• The supply of electricity, kerosene and water
• Goods imported by the government, organizations, institutions or projects exempted from duties and other import taxes to the extent provided by law or by agreement
• Supplies by the post office authorized under the Ethiopian Postal Services Proclamation, other than services rendered for a fee or commission
• The provision of transport
• Permits and license fees
• The import of goods to the extent provided under Schedule 2 of the Customs Tariffs Regulations
• The supply of goods or services by a workshop employing disabled individuals if more than 60% of the employees are disabled
• The import or supply of books and other printed materials to the extent provided in regulations

Additional exempt items per the new directive

The following goods, whether produced locally or imported will be exempt from VAT.

1) Cereals and pulses

• Teff, wheat, barley, maize, sorghum, zengada (Ethiopian millet), dagusa (Finger millet), oats, peas, beans, lentil, soyabean; chickpeas, lupin bean (gebeto), grass pea (lathyrus sativus) and other similar grains and powder of these

2) Agricultural inputs

• Fertilizer, pesticides, seed, veterinary medicine and drug sprayer

3) Cooked or prepared foods/drinks

• Injera, bread and milk

4) Capital goods provided by capital lease agreement

5) Anti-malarial mosquito nets, condoms and chemicals for water treatment

Previous exemptions through directives and decisions

Some of the goods exempted under previous directives, decisions and circulars are as follows:

• Purchase of the production of pickle, wet blue and crests by leather factories
• Import and local production of food oil
• Import and local production of rice
• Import and local production of pasta and macaroni
• Animal skin or hides sold to shoe factories by a leather factory after the tanning process
• Heifers for farmers
• Chicken and animal feed
• Eggs

Transitional provisions

All directives issued and decisions that the Ministry of Finance made from 2002, with the exception of those indicated in the VAT Proclamation, regulations and exempt items under international agreements to which Ethiopia is a party as well as agreements Ethiopia made for payment of VAT, shall be null and void as of the effective date of the Directive.

Next steps

Recall that a recent directive opening more foreign investment into Ethiopia covered some of the items now exempted from VAT, such as grains and pulses. (For background, see EY Global Tax Alert, Ethiopia issues Directive regulating foreign investors' participation in restricted export, import, wholesale and retail trade, dated 2 May 2024.) This latest MOF directive may be seen as further deepening incentives in this area.

Investors should evaluate how the new directive will impact their operations in Ethiopia and seek guidance as need be.