The House of People’s Representative approved the proposed excise tax law on Khat last Monday, July 17, 2012. Business people who earn their livelihood from Khat trade and those who enjoy chewing it will soon feel the burden of the new tax scheme aimed at discouraging the consumption of the green leaf.
The approval of the new law makes it likely that either Value Added Tax or Turnover Tax will be added to the cost of Khat. This will also serve the purpose of collecting an official income tax from businesses or individuals engaged in the production or sale of Khat.
“Any person who [is] possessing, carrying or otherwise handling Khat for sale or designed for sale shall be liable to pay tax levied under this proclamation,” reads article 3 (1) the Khat Excise Tax Proclamation.
“A tax payer liable to pay the tax levied under this proclamation shall, in addition to the excise tax, pay other direct and indirect taxes as determined by other applicable laws,” states article 8 of the new law.
An excise tax is an inland tax on sale or production for sale of specific goods. It is more narrowly defined as a tax on a good produced for sale or sold within a country.
An excise tax is an indirect tax; meaning the producers or sellers who pay the tax to the government pass on the extra cost of the tax to the buyer. By doing so, the seller passes on the tax to the final consumer. Excises are typically imposed in addition to another indirect tax like value added tax (VAT).
The reduction of domestic consumption which is growing at an alarming rate and ensuring an equitable tax regime throughout the country are the driving force behind the introduction the draft law in addition to increasing government revenue generated from Khat.
So far, the tax levied on Khat has not been uniform across the country. The same is true with the tax category. Different regional states levy different tax rates. For instance, Ormiya Regional State levies three birr per kilogram of Khat designed for domestic consumption while Dire Dawa City Administration collects one birr. The approved law stipulates five birr per kilogram across the board for Khat designed for local consumption.
The law has the intention to boost export earnings from Khat. It stipulates a penalty if someone fails to export Khat designed for export for whatever reason.
“The exporters of Khat shall be liable to pay the tax and 25 percent of the tax as penalty if they fail to export the Khat,” reads article 7 (2) of the law.
The Ministry of Finance and Economic Development tabled the approved legal document which imposes excise tax on Khat and the consumption tax it entails before the house on July 05, 2012. Ethiopia earned a little over USD 221 million from the export Khat in the past 11 months of the last fiscal year.