A draft regulation proposing a complete overhaul of Ethiopia’s investment incentive system—with a shift to performance-based tax reductions for companies using at least 50% renewable energy—has sparked debate among key industry players. While the government’s move toward green development and targeted incentives is broadly welcomed, capital-intensive sectors such as cement contend that the 50% renewable energy requirement is not currently feasible for their operations.
The Ministry of Finance convened a stakeholder forum to discuss feedback on the draft regulation governing investment incentives. Article 12, sub-article 2, stipulates that investors using a minimum of 50% renewable energy in production or operations will qualify for a reduced business profits tax rate of 15% on taxable income for five consecutive years from the start of operation.
A representative from Pan African Green Energy (PAGE) PLC, a subsidiary of East African Holdings, explained the difficulties cement plants face in meeting this target. Two of their cement plants, “Lemi” and “National,” primarily use coal—a fossil fuel with significant environmental impacts—with energy costs comprising 60% of total production expenses.
Despite considerable investment over the past decade to substitute charcoal with ‘Pressus juliflora’ biomass, their fuel replacement has reached only 10-15%. The PAGE spokesperson stressed that the 50% renewable energy threshold demands substantial investment and would disrupt existing production systems.
In response, the draft has been amended to introduce a phased incentive structure. Investors achieving a 20% renewable energy substitution could qualify for incentives, with benefits increasing at higher substitution rates, including 50% and 100%.
The cement sector also urged that the definition of “energy sources” explicitly include thermal energy types. The company highlighted plans to produce biomass from urban waste (RDF), tyre-derived fuel (TDF), and hydrogen-based fuels, calling for these to be explicitly recognized within the incentives framework. Additionally, they requested a full incentive package for biofuel projects rather than the limited customs duty and tax exemptions currently proposed.
Other sectors voiced concerns at the forum. Dawit Fiseha of Sefaricom Ethiopia called for the clear inclusion of telecommunications within the Information Technology Development and Service Incentive Program, noting its absence conflicts with international standards and national investment policies. He raised the issue of competitive fairness in mobile financial services (MFS), warning that Sefaricom’s M-Pesa, structured as a separate branch due to legal requirements, risks losing benefits available to other telecom players.
Dawit also advocated removing the Loss Carry Forward provision from the bill, citing telecom’s capital-intensive nature and early years of expected losses, and urged inclusion of telecom in the Capital Allowance section to better encourage long-term investment.
Representatives from the beverage industry, including Dawit Sahle of East Africa Bottling/Coca-Cola and Tirualem Mela of Heineken Ethiopia, expressed disappointment that the food and beverage sector was excluded from income tax incentives. They emphasized the sector’s vital role in the economy and called for meaningful tax relief, particularly amid rising living costs.
Tirualem additionally voiced concern that abolishing the bankruptcy transfer ordinance could undermine Ethiopian producers’ competitiveness within the African Continental Free Trade Area (AfCFTA).
Responding to these issues, Mulay Weldu, head of the Ministry of Finance’s tax policy department, detailed the reform’s six-to-seven-year process, grounded in thorough research. He highlighted efforts to centralize investment incentive approvals under the Ministry of Finance, reducing approval times from 15-30 days to about 24 hours through a new electronic system—an important step in cutting bureaucracy.
Mulay defended the shift away from blanket tax holidays, saying the previous system encouraged unsustainable profit-chasing. While income tax relief remains, it has evolved into purpose-driven incentives. He pointed to the new Investment Capital Allowance (ICA) and reduced income tax rates as improved tools to support capital-intensive investors in achieving earlier profitability.
Acknowledging the importance of macroeconomic and political stability, Mulay stressed that a well-designed incentive framework remains key and is aligned with international practices and domestic research to promote sustainable investment.
