A draft regulation proposing an overhaul of Ethiopia's investment incentive system has sparked debate among key industry players. The draft moves to a performance-based tax cut for businesses that use at least 50% renewable energy. While the government's shift to green development and targeted incentives is widely welcomed, capital-intensive industries such as cement argue that the current 50% renewable energy requirement is not feasible for their operations. The
Ministry of Finance convened a stakeholder forum to discuss the draft. Article 12, paragraph 2, stipulates that investors who use at least 50% of renewable energy in production or operation can enjoy a taxable profit tax rate of 15% for five consecutive years. A representative of Pan African Green Energy, a subsidiary of East African Holdings, explained the difficulties of the cement plant in achieving this goal. Its "Lemi" and "National" cement plants mainly use coal, and energy costs account for 60% of the total production costs. Despite huge investments in the past decade to replace charcoal with mesquite biomass, the fuel substitution rate is only 10-15%. The company stressed that the 50% threshold would require significant investment and disrupt existing production systems.
In response, the draft has been amended to introduce a phased incentive structure. Investors who achieve 20% renewable energy substitution are eligible for incentives, and the higher the substitution rate (including 50% and 100%), the more incentives. The cement industry also urged that the definition of "source of energy" explicitly include the type of heat, and called for explicit recognition of municipal waste-to-fuel, tire-derived fuel, and hydrogen-based fuels, as well as for a full incentive package for biofuel projects, rather than limited tariff and tax breaks currently proposed.
Other industries also expressed concerns at the forum. Dawit Fisseha of Safari, Ethiopia, called for the explicit inclusion of the telecommunications industry in the Information Technology Development and Service Incentive Plan, pointing out that its absence is inconsistent with international standards and national investment policies. He also warned about fair competition in mobile financial services. Beverage industry representatives, including Dawit Sahele of Bottled East Africa/Coca-Cola and Tilualem Mela of Heineken Ethiopia, expressed disappointment that the food and beverage industry was excluded from income tax incentives, stressed the economic importance of the industry and called for meaningful tax relief in the context of rising lifetime costs. Tirualem is also concerned that the abolition of the bankruptcy transfer regulation could undermine the competitiveness of Ethiopian producers in the African Continental Free Trade Area. Moulay Verdoux, director of the tax policy department at the
Ministry of Finance, responded to these questions by detailing the reform process, which was based on comprehensive research and took six to seven years. He highlighted efforts to centralize the approval of investment incentives in the Ministry of Finance, reducing the approval time from 15-30 days to about 24 hours through a new electronic system, which is an important step to reduce bureaucracy. Mullet defended the abolition of the universal tax holiday, saying that the old system had encouraged unsustainable profit-seeking. While the income tax deduction still exists, it has evolved into a purposeful incentive. He pointed to new investment capital allowances and lower income tax rates as improved tools to support capital-intensive investors to achieve profits earlier. Mullet acknowledged the importance of macroeconomic and political stability, but stressed that a well-designed incentive framework remains key and is consistent with international practice and domestic research to promote sustainable investment.
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