266 MIZAN LAW REVIEW Vol. 5 No.2, December 2011
merit goods like education, health and medical services, as well as those for
books and transportation.
There are also exemptions in VAT which are not really motivated by the
desire of the government to encourage consumption. Certain types of
transactions in goods and services have proved difficult for conventional VATs
to apply because of the technical challenges involved in levying VAT on these
transactions. In this category of exemptions, we place the exemptions granted
for the supply of residential houses, investment instruments like shares and
bonds and the supplies of financial services.4
Whatever the motivations for exemptions may have been, exemptions for
various types of goods and services are mainly to be found in the VAT
Proclamation (hereinafter VATP) and VAT Regulations (hereinafter VATRs) –
both issued in 2002.5 The Ministry of Finance is empowered by the VATP to
grant exemptions to additional lists of goods and services not listed in the VATP
and VATRs. 6 The Ministry has since then added its own list of exemptions to
the catalogue of exempted goods and services under the Ethiopian VAT regime.
The exemptions for supplies of bread, injera, milk and agricultural inputs are
some of the lists of goods added by the Ministry.7
The existence of exemptions in any tax law often leads to disputes over the
nature and extent of the exemptions, and VAT is not an exception in this regard.
Of the long list of exemptions, nothing has so far attracted as much attention
from the Ethiopian tax authorities as the exemption of financial institutions.8
This is hardly surprising. Financial institutions, in particular banks, generate
huge sums of revenue and it might at first be galling to think that these services
4 See Value Added Tax Proclamation No. 285/2002, Federal Negarit Gazeta, 8th year,
No. 33, Article 8(2)(a) (b) (c); and Council of Ministers Value Added Tax Regulations
No. 79/2002, Federal Negarit Gazeta, 9th year, No. 19, Articles 19, 20, and 21.
5 See VAT Proclamation 2002, supra note 4; VAT Regulations 2002, supra note 4.
6 See VAT Proclamation 2002, supra note 4, Article 8 (4).
7 See FDRE, Ministry of Finance and Economic Development, 1995 E.C., in Amharic,
unpublished; see also T. Lencho, The Ethiopian Tax System, Michigan State Journal
of International Law (upcoming).
8 See Getahun Worku, “Do Banks really need to Register for VAT for Collection of
Loans?” Reporter, Vol. 16, No. 22/1126, Yekatit 6, 2003 E.C. in Amharic (translation
mine); see also Kirubel Tadesse, “Unpredictable Tax Measures will Hurt
Investments”, Capital, Vol. 13. No. 626, Sunday December 12, 2010; Mahlet Mesfin,
“Financial Institutions, Tax Authority Disagree Over VAT”, Addis Fortune, Vol. 11,
No. 552, November 28, 2010; Shimelis Abebe, “The Application of VAT on Sales
Upon Foreclosure,” Addis Ababa University, Faculty of Law Library Archives,
unpublished, May, 2009; ላሁ Aሊሉ “ መ ል Eም Eለ” -
ል ህ 29 2003 .ም. 10-11 መል