The Ministry of Finance (MoF) has suspended a tax authority decision that would have required fruit drink manufacturers to settle years of unpaid excise tax, stemming from a regulation enacted six years ago.

This issue emerged two years ago when the Ethiopian Food and Drug Authority clarified to the Ministry of Revenue (MoR) that a packaged beverage must contain at least 30 percent fruit concentrate or pulp to qualify as fruit juice. As a result, the MoR mandated that manufacturers register for excise tax and pay the amounts that had not been collected from consumers over the previous four years, dating back to the 1186/2020 excise proclamation. The directive also required manufacturers to pay penalties and interest on these outstanding tax amounts.

In a letter issued last week, the MoF expressed concern that the MoR’s decision had severely impacted manufacturers, creating significant financial strain. The letter stated, “It forced several producers to close their businesses, while similar imported products are not subject to the same tax, harming the competitiveness of local manufacturers.” This action followed a formal complaint from the Ministry of Industry (MoI) received by the MoF in April.

Dated September 22 and signed by former State Minister Eyob Tekalign (now Governor of the National Bank of Ethiopia), the MoF letter emphasized that it was unfair to burden manufacturers with accrued taxes that had not been collected from consumers due to ambiguous legal language. The letter indicated, “Pending a permanent solution by the relevant authorized body, the enforcement of this decision has been temporarily halted.”

This new decision follows a year of negotiations. Initially, the MoF insisted that manufacturers settle the tax, albeit without penalties or interest, but manufacturers cited their inability to pay. The government also provided an option for installment payments.

With support from the MoI, the regulatory body’s latest decision has pleased manufacturers. The MoF clarified that manufacturers are now only required to pay excise tax on products sold after the MoR’s implementation letter was released in November 2023.

Ashenafi Merid, General Manager of the Ethiopian Beverages Manufacturing Industries Association, expressed gratitude for the understanding and support from the Industry and Finance ministers in making this significant decision. He reflected on the nearly two-year struggle, stating, “It is a big relief for the sector.”

Ashenafi noted that the demand for payment of the accrued tax had severely impacted domestic juice producers, forcing nearly all to halt production. He pointed out that only a few foreign-based investors managed to continue operations.

Reports indicated that manufacturers were, on average, being asked to pay approximately 70 million birr in back taxes.

“We hope that the manufacturers will rehire their employees and resume operations soon,” the association head added with optimism.