Ethiopia’s new VAT law aims to broaden tax base, enhance economic growth

Ethiopia’s newly introduced VAT law, aimed at expanding the country’s tax base, has the potential to bring significant growth and development across various sectors. The law, effective from July 2024, introduces a 15% VAT on general insurance plans while maintaining exemptions for life and health insurance. This move is designed to align Ethiopia’s financial services with global standards and increase revenue streams to fund national development.

Experts acknowledge that the inclusion of traditionally exempt sectors, such as the insurance industry, represents a shift in the country’s fiscal approach. While concerns have been raised about the potential impact on premiums and payouts, industry professionals are already exploring solutions, such as contractual agreements with policyholders, to mitigate challenges.

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By expanding VAT coverage, the Ethiopian government is taking steps to formalize keyn industries and ensure that more businesses contribute to national growth. As more players enter the market, the insurance sector could become more competitive, encouraging efficiency and better services for consumers.

Other industries, such as cotton traders and textile manufacturers, are also preparing to adapt to the new VAT system. Though previously exempted, their inclusion represents an opportunity for the government to bring more informal sectors into the formal economy, providing new opportunities for growth.

As Ethiopia continues its efforts to strengthen its economic framework, the VAT law is expected to play a crucial role in modernizing the country’s tax system and driving sustainable development.