A Directive to Provide Goods Exempt From Value Added Tax (Directive No.1006/2016)
Summary
This directive aims to specify goods that are exempt from Value Added Tax (VAT). It supersedes previous directives that provided blanket exemptions, which were found to be ineffective and reduced government revenue. The new directive clarifies which goods, both locally produced and imported, along with certain services, will continue to be exempt from VAT, while previously exempted items will now be subject to VAT. It also lists specific items such as cereals, pulses, agricultural inputs, certain food items, capital goods under capital lease, anti-malarial nets, condoms, and water treatment chemicals as exempt.
Who's affected
Businesses involved in the production, import, and sale of goods and services, particularly those dealing with basic food items, agricultural inputs, and other specified categories that were previously exempt from VAT.
Action required
Businesses should review the list of newly specified exempt goods and services in the annex and ensure compliance with VAT regulations for items that are no longer exempt.
Key points
6- This directive specifies goods exempt from VAT.
- It replaces previous broad exemptions with a defined list.
- Locally produced and imported goods listed in the annex are exempt.
- Certain services are also exempt.
- Previously exempt items not listed are now subject to VAT.
- Includes exemptions for cereals, pulses, agricultural inputs, specific food items, capital goods under lease, anti-malarial nets, condoms, and water treatment chemicals.
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Requirements
3- Businesses must adhere to the specific list of goods and services exempt from VAT as provided in the directive and its annex.
- Previously exempt goods and services not listed in this directive are now subject to VAT.
- Compliance with VAT proclamation No. 285/2002 and regulation No. 79/1995 regarding exemptions.
Rights and permissions
2- The right to VAT exemption for goods and services explicitly listed in the directive and its annex.
- Exemption for goods and services that are exempt under international agreements to which Ethiopia is a party.
Restrictions
3- Goods and services previously exempt but not listed in this directive are now subject to VAT.
- Blanket exemptions previously granted through various directives are nullified, except for those specified.
- The directive revokes previous directives and decisions regarding VAT exemptions, except for those explicitly preserved.
Penalties
1- Failure to comply with VAT regulations for goods and services no longer exempt will likely result in penalties as per existing tax laws.
Objectives
4- To clarify and specify goods and services that are exempt from Value Added Tax.
- To ensure that VAT exemptions benefit the intended low-income population.
- To increase government revenue by revoking broad, ineffective exemptions.
- To provide a clear list of exempt items in line with international agreements and VAT regulations.
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Organizations
2- Ministry of Finance
- Ministry of Justice
Legal references
3- Value Added Tax Proclamation No. 285/2002 (as amended)
- Value Added Tax Regulation No. 79/1995
- International agreements to which Ethiopia is a party