Ethiopia's Finance Ministry has proposed new rules to tax social media and e-commerce sales under the country's value-added tax regime.
Ethiopia is considering taxing its burgeoning online commerce sector, joining a growing number of African nations facing lost revenue as more business shifts to digital platforms untapped by existing tax regimes.
The proposed rules, part of the new VAT draft proclamation that was already approved by the Council of Ministers, were shared with parliament's budget and finance committee as part of broader reforms approved by the cabinet.
Finance Ministry representatives said modernizing tax rules was crucial as businesses migrate online. "Our system must keep up as digital incomes grow," committee chair Desalegn Wedaje said.
Any proceeds could provide urgently needed revenue, but lawmakers voiced concern over effectively taxing informal online entrepreneurs lacking storefronts. Officials pledged to balance regulation and compliance burdens.
All agreed applying value-added tax, or VAT, in cyberspace could significantly boost public finances if properly implemented. However, stakeholders must have input into legislation respecting their needs and technology's rapid evolution.
Technology and e-commerce associations and companies will be consulted to finalize rules by the 2024/25 fiscal year, taxing the booming digital trade and capturing associated proceeds, one unnamed official told Reuters.
Internet access has risen sharply in Ethiopia in recent years. But the ministry estimates virtually all online business presently slips under the taxman's net due to policy gaps, which it hopes reforms will remedy.
Over 20 African countries have already enacted digital services tax rules, with Ethiopia among at least five more drafting similar measures according to tax consultants. The goal is ensuring the digital slice of local economies also contributes.
