The Ethiopian Edible Oil Manufacturing Industries Association (EEOMIA) has urged the government to reconsider its recent Value Added Tax (VAT) directive, warning that if changes are not made, inflation could skyrocket.

In its recent directive, the government has warned that not excluding other imported products, including edible oils, from the list of VAT exemptions could subject consumers to unfair price inflation due to unfair competition between tax-paying producers and non-paying traders.

The Ministry of Finance issued its directive 1006/2024 on June 20, 2024, outlining goods exempt from VAT, excluding edible oils, oilseeds, and animal feed that were previously on the VAT exemption list. This decision has created undesirable market competition in the manufacturing industry, putting significant pressure on consumers and potentially driving down prices.

Explaining the rationale behind the directive, the Ministry of Finance stated that it aims to enable low-income sections of society to purchase basic food supplies free of VAT and to ease their financial burden.

The government announced that products produced domestically and imported goods and services provided in the country are exempt from VAT. However, EEOMIA has requested the Ministry of Finance to reconsider its decision to exclude certain products from the VAT exemption list.

In a letter to the Minister of Finance, the association warned that excluding cooking oil, imported crude oil, oilseeds, and animal feed from the VAT exemption list could exacerbate inflation through unfair market competition between VAT-paying producers and non-paying traders. EEOMIA emphasized that its products were previously exempt from VAT and other taxes, allowing its members to compete fairly in the market.

The Minister of Finance, in its mid-June decision, stated that past exemptions under various guidelines were not beneficial to society and eroded government revenue, preventing it from reaping sectoral benefits. Products such as teff, wheat, barley, cereals and legumes, fertilizers, pesticides, and other agricultural inputs, as well as cooked or prepared foods/beverages and capital goods provided under capital lease agreements, are exempt from VAT.

EEOMIA, which currently has 232 small, medium, and large-sized producer members, expressed concern that the directive could lead to price increases and undermine the competitiveness of factories.