Headquarters of the Ministry of Finance (Photo: Social Media)

Addis Abeba – The Ministry of Finance (MoF) has issued a new directive establishing the VAT-exempt thresholds for domestic electricity and water consumption.

Effective 05 September, 2024, the directive exempts the first 200 kilowatt-hours (kWh) of monthly electricity consumption and the initial 15 cubic meters of monthly water consumption (excluding bottled water) from VAT.

The directive mandates that Ethiopia Electric Power (EEP), the sole electricity supplier in Ethiopia, and entities engaged in electricity generation and transmission must collect VAT on wholesale electricity sales and remit the collected tax to the Ministry of Revenues.

The directive was issued three months after the House of Peoples’ Representatives approved the amended VAT proclamation, originally introduced in 2002.

The amendment aims to expand the VAT base by encompassing a broader range of goods and services, sparking public discussion.

This public discontent was evident during a parliamentary discussion on 18 June, 2024, where stakeholders from various sectors engaged in heated debate with officials from the Ministry of Finance.

The debate centered on the articles that proposed including basic services such as water and electricity within the VAT regime.

During the discussion, ministry officials pledged to exempt a baseline amount of electricity and water consumption sufficient for the needs of an average household.

Legal experts from the Ministry of Finance are currently drafting a regulation to implement the newly approved VAT proclamation.

The draft regulation encompasses various aspects, including registration, suspension, cancellation, and the regulation of specific sectors such as transportation, education, and finance.

According to the draft regulation, essential food items like grain and cereals (teff, maize, and corn) as well as staple foods such as injera and bread will remain exempt from VAT.

Three weeks ago, officials and experts from the Ministry of Finance convened with the business community to discuss the draft VAT regulation.

After considering the feedback from stakeholders, the draft regulation is anticipated to be tabled to the Council of Ministers for final approval. AS