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The Ethiopian government has announced a new directive aimed at revising the existing subsidy framework for water and electricity services. For the past 22 years, low-income households in Ethiopia have enjoyed water and electricity services exempt from additional value-added tax (VAT). This exemption was initially intended to alleviate the financial burden on low-income households. However, it has come to light that a significant portion of the population, with the financial means to pay for these utilities, has been the primary beneficiary of this tax-free status.
The new directive, to be issued by the Ministry of Finance in the coming days, will redefine the eligibility for tax exemptions on water and electricity services. The revised framework will focus on exempting only the average monthly consumption per household, ensuring that households consuming beyond this threshold will be subject to VAT. This adjustment is intended to create a more equitable distribution of resources and ensure that subsidies truly benefit those in need.
In parallel, the government has also revised its approach to transport services. Similar to the water and electricity sectors, transport services have been VAT-exempt for the past 22 years to support low-income households. However, this exemption has only applied to public and freight transport services. The government has decided that it is no longer appropriate to extend this support to other types of transport services.
Moving forward, the exemption will continue for public transport services, particularly those utilizing vehicles with a seating capacity of less than eight passengers, excluding three-wheeled vehicles. These vehicles, which are crucial for public transportation in Ethiopia, will remain VAT-exempt to ensure affordable transport options for the broader population. However, private transport services using vehicles with a seating capacity of eight passengers or more will now be subject to VAT.
When I come to realize that this fire-spitting patriot H.E. Ahmed bin Shide is in charge of the financial affairs, I’m assured more than ever that the old country is an extremely capable hands. He has brought grace to the ministry.
Go get’em tiger!!!!