Ethiopia Introduces VAT Exemptions for Electricity and Water

The Ministry of Finance of Ethiopia has issued Directive No. 1021/2024 regarding the VAT exemptions. This directive outlines exemptions from Value Added Tax (VAT) for domestic electricity and water usage. It aims to help households, especially those with lower incomes, by making essential utilities more affordable.

The directive issued by the Ministry of Finance of Ethiopia specifies that households can enjoy VAT exemptions on certain consumption levels. Monthly electricity consumption up to 200 kWh is exempt from VAT. Additionally, monthly water consumption up to 15 cubic meters is also exempt, excluding bottled water. This initiative ensures that basic utilities remain accessible to all citizens.

While the directive benefits consumers, it also places responsibilities on suppliers. Those involved in generating and transmitting electricity must still collect VAT on wholesale electricity sales. They are required to remit this tax to the tax authority. This measure ensures that the government continues to receive revenue from larger transactions in the energy sector.

The directive will take effect once it is registered with the Ministry of Justice. It will also be published on the websites of the Ministry of Justice and the Ministry of Finance. This step is crucial for ensuring that all stakeholders are informed of the new regulations.

Directive No. 1021/2024 is a significant step toward making essential services more affordable for Ethiopian households. By exempting a reasonable amount of electricity and water consumption from VAT, the government aims to create a fairer environment for domestic users. As this directive is implemented, it is important for both consumers and suppliers to understand their rights and responsibilities.

Moreover, last week, the government of Ethiopia introduced new changes to its value-added tax (VAT) policy through Proclamation No. 1341/2016 to better support low-income households. 

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