Capital Ethiopia Newspaper

Khat to be included in VAT

People engaged in the business of selling Chat and those who enjoy chewing it will soon face a tax scheme aimed at discouraging the ever increasing consumption. The Ministry of Finance and Economic Development (MoFED) tabled a draft law which imposes an excise tax and possibly a consumption tax on Chat before the House of Peoples Representatives last Thursday, July 5, 2012. 
The enactment of the excise tax on Chat may lead to Value Added Tax or Turnover Tax for consumers of the dollar leaf. 
Article three and eight of the draft proclamation say that anyone who distributes or sells Chat has to pay an excise tax in addition to other taxes they already pay.  Exporters who fail to export their chat will be liable for a 25 percent tax, according to article seven of the draft law.
Excise taxes are levied on the person who is producing or selling the product and then they usually pass that expense on to the consumer by raising prices. Excise taxes are typically imposed in addition to another indirect tax such as value added tax (VAT).
Domestic Chat consumption continues to rise and the government hopes that this will slow its use. They also believe this will make tax collection equal throughout all regions of the country as currently this is not uniform.
For instance, Oromiya Regional State levies three birr per kilogram of Chat designed for domestic consumption while Dire Dawa City Administration collects one birr. The draft excise tax law stipulates a five birr flat rate per kilogram across the board for Chat designed for domestic consumption, replacing any former duty.  
Chat exports brought in 221 million dollars in the last eleven months.
The house referred the document to Budget and Finance Affairs Standing Committee for supplementary discussion.