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1. Introduction
Recently, the Ministry of Finance enacted Directive No. 1006/2024, titled "Directive to Provide Goods Exempt from Value Added Tax." The primary intention behind this Directive is twofold: first, to alleviate the financial burden on low-income groups by exempting basic food items from VAT; and second, to address the inefficiencies of previous VAT exemptions, which often failed to benefit the intended recipients and resulted in significant revenue losses for the government. This new Directive seems to aim on redirecting potential revenue to essential economic and social development activities to improve the lives of the poor.
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2. VAT Exempted Goods and Services
2.1. Preexisting VAT Laws and Regulations
The Directive impacts both exemptions and VAT imposition. While it upholds the exemptions outlined in the Value Added Tax Proclamation No. 285/2002 (as amended) and Articles 19 to 33 of the Value Added Tax Regulation No. 79/1995, it mandates that all other goods and services previously exempted through various directives or decisions by the Ministry of Finance will now be subject to VAT from the effective date of this Directive.
2.2. Newly Exempted Goods and Services
The Directive invalidates all prior exemption regulations, directives, and decisions of the Ministry of Finance, except for those stated in the amended VAT Proclamation No. 285/2002 and Articles 19-33 of the VAT Regulation No. 79/1995. The newly exempted goods and services under Directive No. 1006/2024 include:
2.2.1. Cereals and pulses;
2.2.2. Agricultural inputs;
2.2.3. Cooked or prepared foods/drinks;
2.2.4. Capital goods provided under capital lease agreements; and
2.2.5. Anti-malarial mosquito nets, condoms, and chemicals for water treatment.
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3. Conclusion
The goals of Directive No. 1006/2024 are commendable, focusing on reducing the financial strain on the lower-income population and improving the effectiveness of VAT exemptions. However, its success will largely depend on effective implementation and enforcement. Only time will reveal the extent to which these VAT exemptions will alleviate the economic burdens on the majority of the population, particularly in Addis Ababa and other major cities.
Disclaimer: This update is intended for informational purposes only and does not constitute legal advice. For specific legal concerns or detailed guidance on compliance with the new directive, please consult a qualified attorney.
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At Million Alemu Legal Services, we provide legal services in Ethiopian tax law and have extensive experience navigating the complexities of VAT regulations. If you have any questions or need assistance with tax-related legal matters, please do not hesitate to contact us. Our team of lawyers is ready to provide the support you need to ensure compliance and optimize your tax strategy.
| File | Description | File size |
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 New VAT Exemptions Directive-2024.pdf | 260 kB |