Ethiopia's beverage industry faces rising costs from increased taxation and unpredictable policies. Industry representatives outlined difficulties during a panel, including disrupted expansion plans from sudden tax hikes. Frequent policy changes make planning difficult for new and large companies. Tax compliance is already high but additional costs burden producers. Foreign exchange shortages also inhibit imports. While tax revenues are aimed, unintended consequences could undermine goals if production expenses increase prices or cut jobs. The industry wants cooperative engagement to sustain investments, but authorities seek responsible revenue collection.
Ethiopia's beverage industry, while an important economic sector, faces significant challenges stemming from rising taxation and fluctuating government policies according to industry stakeholders. In a panel discussion held on July 22nd at the Skylight Hotel in Addis Ababa, representatives from three leading beverage companies outlined the difficulties their businesses are encountering.
Henok Zengaw, Corporate Affairs Manager at Komari Beverages, expressed frustration with the timing of new taxes and regulations which disrupted their company's expansion plans. Komari entered the market in 2021 with their Arada Seltzer brand, but ongoing conflicts and the COVID-19 pandemic delayed their initial launch. Just as they were getting established, the government significantly raised excise taxes on all beverages.
"We don't adjust prices unless tax is raised, but with the introduction of this new excise tax stamp we will be forced to pass those costs on to consumers," Henok said. The excise tax stamp is a new measure requiring companies to purchase digital stamps from the Ministry of Revenues and affix them to product packaging to prove taxes have been paid.
Henok argued the frequent changes in tax policy make it difficult for businesses to plan effectively. “Now again the government is introducing an excise tax stump, which is another headache increasing our production cost, squeezing our revenue,” he remarked. As a small, new entrant to the market, Komari Beverages is still working to gain market share and feels these types of unpredictable taxes put them at a competitive disadvantage versus larger, established brands.
Mekdes Sahlemariam, Director of Corporate Affairs for Heineken Ethiopia, touched on similar themes but from the perspective of a large, multinational company. As the country's top brewer with an annual production capacity of 5.6 million hectolitres, Heineken faces unique operational challenges. Mekdes cited foreign exchange shortages as a major problem, inhibiting imports of key inputs like malt and making machinery maintenance difficult.
She also pointed to policy unpredictability, noting Heineken had only recently adjusted to triple excise tax increases in the last three years. "And as we were managing our operation with the triple increase adjustmet made on excise tax over the last three years, now the excise tax stump just introduced," Mekdes lamented. While Heineken contributes significantly to government coffers through taxes—an estimated 900 billion birr annually according to Mekdes—the company struggles with inefficiencies caused by resource constraints and expensive equipment needs.
While Ethiopian government's recent directive mandating excise tax stamps on certain goods like beer continue to sparking significant debate, with the brewing industry raising practical concerns over the system's feasibility and economic impacts, the Ministry of Finance anticipates the stamps will boost excise tax revenue by 24.4 billion birr this fiscal year alone, with over a third attributed to breweries.
Industry representatives question whether revenue gains could be offset in the long-run. Their skepticism comes amid a study commissioned by the Ethiopian Brewers' Association. The study finds breweries may face substantial costs integrating the digital tracking infrastructure required to interface with the ERCA system. It also notes the already high level of excise tax compliance in the brewing sector and low risk of counterfeit beer products domestically.
These implementation challenges are exacerbated by recent tax increase on lower alcohol beverages up to five percent, directly imposing an additional three billion birr annual cost on breweries. With the directive enabling passing these costs to consumers through higher prices, breweries warn of potential demand decline impacts.
Should sales volumes shrink over time, it threatens negative ripple effects through agricultural suppliers, distributors and higher consumer prices - undermining the sector's strategic role in Ethiopia's development. Industry representatives also stress difficulties presented by machinery installation expenses, system integration complexities and reliance on reliable internet access nationwide.
Nigus Alemu, Legal Counsel and Communications Director of Coca-Cola Beverages Africa-Ethiopia,, gave the starkest view of rising costs. "Tax is becoming unbearable," he declared. "The federal government is imposing one tax on another, plus regional authorities impose their own." He cited trucking fees increasing from 5,000 birr previously to as much as 90,000 birr currently when accounting for the excise tax stamp.
On top of ballooning taxes, the Coca-Cola representative pointed to erratic power, sugar shortages exacerbated by currency issues, and concerns over the legal basis for excise stamps. "As far as I know, excise tax stamp is something illicit," they remarked. Overall the triple challenges of high taxation, input constraints, and policy uncertainty were squeezing profit margins in an already difficult operating environment.
The beverage industry's concerns stem from Ethiopia's introduction in April 2024 of mandatory excise tax stamps for specific goods. The directive, issued under authority of the 2020 Excise Tax Proclamation, targets spirits, tobacco, bottled water, beers, cigarettes and cigarillos according to official documentation. Producers and importers of these items must now purchase digital stamps worth the excise tax amount from Ministry of Revenues 60 days in advance of production or import.
Stamps are then physically affixed to product labels or packaging as proof taxes were paid. An authentication and tracking system links stamps to the Ministry of Revenues to curb evasion. Severe penalties including imprisonment and hefty fines await any violations of proper use or unauthorized production without stamps. The aim is to enhance tax collection and broaden Ethiopia's tax base through strengthened enforcement.
However, stakeholders argue implementation has been rushed without properly addressing their concerns. All three panellists highlighted inadequate consultation prior to the directive's rollout. "Policymakers did not factor in difficulties we face securing foreign currency and raw materials. Now we have one more cost pressure without supporting policy changes," noted Mekdes.
The Coca-Cola representative questioned whether aspects contradicted existing legislation or international best practices on tax administration. Mekdes from Komari Beverages felt small, local companies urgently needed tax relief and longer lead times for compliance given recession risks. "Is the goal to collect more taxes or develop local industry?" he asked. "Because these policies seem aimed only at revenues without considering consequences."
Tax authorities counter the stamps aim to boost fiscal receipts in a fair, transparent manner. However, several economists warn unintended impacts could undermine that goal. A consultant points out rising production expenses lead firms to either cut jobs or increase consumer prices. Both scenarios curb aggregate demand and economic activity, reducing overall tax revenue.
The consultant conducted a study earlier this year modeling various tax policy scenarios. It found that beyond a certain threshold, additional tax increases fail to generate more funds and may even reduce revenues. "There is an optimal rate of taxation that maximizes tax collection. Ethiopia seems to have surpassed that point given industry complaints and the rising informal market," he stated. In other words, over-taxing the formal sector incentivizes informality which hurts the government, according to the expert.
Moving forward, the beverage industry hopes for more cooperative engagement. Mekdes of Heineken Ethiopia voices willingness to play a constructive role via open policy dialogue. But their businesses require predictability and economic stability in parallel with regulation in order to sustain investments, jobs and tax contributions over the long-term. The government meanwhile aims for responsible revenue collection maintaining fiscal integrity.
Whether these objectives can align through reformed cooperation or cross purposes due to lack of communication remains to be seen. As Ethiopia navigates economic challenges, how it balances business viability concerns alongside tax policy ambitions will shape both state finances and industry competitiveness with implications for citizens across society.
