The Value Added Tax Proclamation No. 285/2002 (as amended by Proclamation No. 609/2008) is further amended by Proclamation No. 1157/2019, which came in to effect as of August 13th 2019. The changes introduced by this amendment, which is enclosed hereunder, are as follows. Article 2 (1) of the amendment has repealed and replaced the definition that was used by Article 2(1) of Proclamation for “accounting period”. Accordingly, “accounting period” is defined into two categories: “in the case of taxpayers whose turnover in any 12 (twelve) months is Birr 70,000,000 (seventy thousand) and over, the accounting period will be every month; while in case of taxpayers whose turnover in any 12 (twelve) months is less than Birr 70,000,000 (seventy thousand), the accounting period will be every 3 (three) months”; in both instances the month of Nehasse and Pagumen are aggregated and treated as one calendar month.
As per Article 2 (4) of this amendment the Ethiopian Revenues and Customs Authority is renamed as the Ministry of Revenue, with the view of reflecting the recent re-structuring of the Executive Organs of Ethiopia.
Article 2 (27) of the amendment has added new definition by defining “capital good” as “an asset with a life time of more than one year, used directly or indirectly in the manufacture of goods and in the rendition of services and includes building, vehicle, machinery, equipment and other similar tangible assets”.
Article 7 (5) of Proclamation No. 285/2002 (as amended by Proclamation No. 609/2008) is repealed and replaced by the following new provision: “in the case of transactions to which sub-article 1 (a) of this article is applicable; (a) the tax shall be withheld and paid to the Authority [Ministry of Revenue] by the buyer in accordance with the directive to be issued by the Ministry of Finance; (b) the tax withheld in accordance with this article shall be 50 percent of the tax payable by the buyer and the balance shall be paid to the seller.”
It should be made clear that sub-article 1 (a) of Article 7, which is referred to by this amendment provides that “subject to the provisions of this Proclamation and subject sub-article 2, there shall be levied and paid a tax, to be known as value added tax, at the rate of 15% of the value of (a) every taxable transaction by a registered person.” Hence, as per this new amendment the amount to be withheld and paid by the buyer is 50% of the tax payable and the remaining will be maintained by the seller.
Article 21 (6) of Proclamation No. 285/2002 (as amended by Proclamation No. 609/2008) is repealed and replaced by the following new provision: “(a) a person who registers or has to register for VAT shall be entitled to credit under this Article in the first accounting period in which the person is registered or has to register for VAT, on the amount paid on goods at hand on the date of registration and that are used or to be used for the taxable transaction, but only to the extent that the purchase or import of the goods occurred not more than six months before the date of registration. (b) a person whose 12 (twelve) months taxable transaction exceeds Birr 100,000,000 (one hundred million) shall be entitled to credit under this Article in the accounting period after the date of registration on the amount of the value added tax paid on capital goods at hand or purchased after the date of registration that is used or to be used for taxable transaction”.
As per the amendment of Article 21 (6) (a), only the amount of goods that are used or to be used for the taxable transaction can be deducted by the taxpayer; while as per Article 21 (6) (b) a tax payer is entitled for the tax credit only where the annual taxable transaction exceeds Birr 100,000,000 (one hundred million) and on the amount of VAT paid on capital goods at hand or purchased after the date of the registration that is used or to be used for taxable transaction.
However, as stated under Article 27 (7), which is added as new sub-article by this amendment, the taxpayer who benefited from the provision of Article 21 (6) (b) as stated herein is obliged to “refund the remaining amount of VAT paid on capital goods in excess of the amount credited in the accounting period within the coming one month.” Finally, the amendment has added provision of Article 27 (8) which entitles the Ministry of Revenue to “implement risk-based refund system for refund to be paid in accordance with this Article [which deals with VAT Refund].”
Posted on 27 Sep 2019