Ethiopia is scheduled to implement significant regulatory changes in the second half of 2023, with the goal of improving the business environment, encouraging investment, increasing government revenue, and boosting economic growth. Here are the highlights of the major regulatory changes that are expected to occur in Ethiopia in the second half of 2023.
Foreign Investment Regulation
The Ethiopian government is now amending its foreign investment restrictions with the launch of a new investment proclamation. The new investment proclamation is expected to bring significant changes to Ethiopia’s foreign investment regulation, including the liberalisation of previously reserved sectors for domestic investors, the introduction of new incentives for foreign investors, and the simplification of administrative procedures for foreign investment. The government hopes that the new investment announcement will encourage more foreign investment, job creation, and economic growth and development in Ethiopia. The new investment proclamation is expected to be enacted soon, while no specific timetable for implementation has been set.
Customs and Trade Facilitation
The Ethiopian Revenue and Customs Authority (ERCA) is expected to introduce new customs and trade facilitation measures in the second half of 2023. The measures aim to modernize and simplify the customs process, reduce the time and cost of trade, and improve compliance with international trade standards. The new measures are expected to include the introduction of an electronic single window system, the automation of customs procedures, and the simplification of customs documentation.
The Ethiopian government is expected to introduce new mining regulations in the second half of 2023. The new mining proclamation is expected to introduce significant changes to the legal and regulatory framework for mining in Ethiopia. These changes are aimed at improving the investment climate in the mining sector, increasing the participation of local communities in mining activities, and ensuring the sustainable development of the sector.
One of the key changes proposed in the new mining proclamation is the introduction of a royalty-based system for the taxation of mining activities. Under the new system, mining companies will be required to pay a royalty fee on the minerals they extract, in addition to other taxes and fees.
VAT and Income Tax Reform
The Ethiopian government is expected to continue its taxation reform programme in the second half of 2023. The programme aims to increase tax revenue, improve tax administration, and reduce tax evasion. Major upcoming taxation reform in the country includes upcoming VAT and income tax proclamations.
VAT: The Ethiopian government is currently in the process of introducing a new VAT proclamation that will replace the existing VAT law that has been in place since 2002. The new VAT proclamation is expected to introduce significant changes, including the expansion of the tax base and the simplification of the tax administration procedures. The new VAT system will be based on a single rate of 15% applied to all goods and services, with a few exemptions and zero-rated items. New VAT provisions on insurance premiums and payments on compensation claims, service charges on money transfer through digital payments, and mandatory VAT collection requirements for non-domiciled entities were included in the draft open for stakeholder consultations in March 2023.
The new VAT proclamation is currently making its way through Ethiopia’s law making ladder and is expected to reach the House of People’s Representatives (HoPR) when the parliament reopens in September for its third year.
Income Tax: The Ethiopian government is in the process of revising its income tax laws through the introduction of a new income tax proclamation. The new income tax law is expected to introduce significant changes to the tax system in Ethiopia, including the introduction of a new tax bracket for higher earners, the reduction of tax rates for small and medium-sized enterprises, and the expansion of the tax base to include income from sources such as dividends, interest, and capital gains. The government hopes that the new income tax system will increase tax revenue, promote investment, and support economic growth and development. The new income tax proclamation is expected to be enacted sometime in 2023/24, although an exact date for its implementation has not yet been announced.
National bank proclamation and new regulatory body for Insurance
The Ethiopian government has been working on a new National Banking Proclamation after Council of Ministers regulations lifted the restriction of the banking sector only to domestic investors in 2022. The proclamation, which is set to be implemented in 2023/24, seeks to address issues such as weak corporate governance, limited competition, and inadequate supervision that have hampered the sector’s growth and stability by opening up the sector to foreign investors through modalities that are currently being explored.
Concurrently, Ethiopia is also expected to setup a new regulatory body for its insurance industry as the mandate of NBE, its current regulator, will now focus on a growing banking and fintech sectors. Ethiopia currently already has 31 licensed banks, 45 Microfinance Institutions (MFIs), 6 Capital Goods Leasing companies, and 8 payment instrument issuers with about 5 foreign banking licenses expected to be issued in the next five years.
Second telecom license and potential sale of Ethio Telecom
After Safaricom Telecommunications Ethiopia was awarded the first ever private and foreign telecom license in 2021, Ethiopia continued its telecom liberalization drive in the first half of 2023 by published a Request for Qualifications (RFQ) for a second license. Interested parties now have unto September 15 2023 to put forward their interests.
When issued, this license is expected to be the third alongside Safaricom and state-owned Ethio Telecom, whose 45% stake is also expected to be up for investors in the second half of 2023.