Drivers of ride-hailing apps in Ethiopia should brace up for more VAT payments if the bill is implemented
A new bill drafted by the Ministry of Finance, if approved, will have ride users paying 15% Value-Added Tax (VAT) on every trip they make. It amends the existing VAT proclamation that was legislated in 2002.
The bill in question had been previously amended in 2019 when the government revised the VAT accounting period from one calendar month to three calendar months based on the annual turnover of a taxpayer.
To ease the burden on the masses, the newly amended VAT proclamation will exempt the transport sector from tax, except for users of transport vehicles with less than eight seaters. Users of taxi-hailing and other cabs are part of those excluded from tax exemption.
The taxi-hailing companies on the other hand will be required to pay 15 percent VAT on every commission they make.
At the moment, there are over three dozen taxi-hailing companies in Ethiopia, and they remit over 350 million birr in taxes, along with the drivers whom they have partnered with.
On top of the 95 birr initial fare that they are compelled to pay regardless of how far they travel, customers are also charged between 12 birr and 20 birr per kilometer.
According to Habatmu Tadesse, the general manager of ZayRide, a hugely successful taxi-hailing company, this new VAT could potentially discourage users from using taxi-hailing services which would have adverse effects on the business.
He laments that the sudden increase in fuel price has caused a fall in earnings, as customers have begun to move to other options, including minibusses and buses.
He proposed the government look for other means to increase tax revenues, such as expanding the base by including Code 2 cars in the taxi business.
According to Narods Addis, the founder and CEO of Wes, a new player in the taxi-hailing business whose application has been downloaded by over 10,000 users, the implementation of the new VAT might trigger a downturn.
Ethiopia-Tax: List of Taxes Imposed On Business Companies
For companies intending to establish a new business in Ethiopia and those who already have one, below is a list of taxes imposed by the government.
Corporate Income Tax
The corporate income tax (tax on profit) in Ethiopia is 30%.
Turn Over Tax
A 2% tax is expected from the supply of goods to the local market and rendering of construction, grain mill, tractor, and so on. A 10% tax is payable on other sectors outside the above-mentioned services.
Excise Tax
Excise tax is charged on certain items when produced locally or imported from abroad. The tax rate ranges from 10% to 100%.
Customs Duties
Customs duties are levied on imports by all persons and entities which have no duty-free privileges. The rate of customs duty ranges from 0 to 35%.
Income Tax from Employment
According to Proclamation No.286/2002, the first Birr 150 of monthly personal income is exempted from payment of income tax. For monthly income of Birr 151 and above the marginal tax rates range from 10% to 35% with 7 income brackets.
Withholding Tax
Withholding tax is charged on the importation of goods and is set at 3% of the same cost, insurance, and freight.
Value Added Tax
Businesses whose turnover is over and above Birr 500,000 per year are expected to pay VAT, which is usually charged at 15%. All export goods and basic services, however, are exempted from VAT.
Ethiopia-Tax: Similar Tax Regulation in the continent
In 2020, Lagos; Nigeria’s commercial capital introduced a new regulation for e-hailing taxing services as Part 4.1 subsection 5 of the document titled, ‘e-Hailing Taxi Operation’, stated that all drivers must pay 10 per cent generated on every trip to Lagos State Government.
Also recall that late last year in Nigeria, The Federal House of Representatives had announced intentions to investigate the tax compliance of ride-hailing businesses in the country.
