Ethiopia’s main bank introduces VAT on services --[Reported by Umva mag]

The Commercial Bank of Ethiopia (CBE) has introduced value-added tax (VAT) on various financial services as part of its efforts to comply with the government’s new tax laws and raise revenue.

The VAT increase, effective from October 1, 2024, is linked to broader economic reforms impacting Ethiopia’s financial sector.

This move comes at a critical time for CBE, which is facing growing financial challenges due to the recent floating of the Ethiopian birr and its exposure to non-performing loans from state-owned enterprises (SOEs).

The introduction of VAT on banking services is one of several measures the bank is adopting to strengthen its financial position and absorb the impact of currency fluctuations.

The recent floating of the Ethiopian birr is believed to have significantly impacted CBE’s financial situation. The exchange rate surged from around 57 birr to over 112 birr per US dollar, leading to a sharp increase in the bank’s foreign exchange-denominated liabilities.

As a result, CBE has had to adjust its services and pricing to cope with these rising costs. The introduction of VAT is one such adjustment, intended to bolster revenue and mitigate the impact of the currency devaluation.

Recently, Prime Minister Abiy Ahmed (PhD) addressed the importance of reforming CBE as part of Ethiopia’s broader economic reform efforts. The Prime Minister pointed out that CBE has been burdened with billions of birr in loans provided to government projects, many of which were delayed or never completed. “Without recovering these loans, CBE faces financial risks that could jeopardize its future,” he said.

MG/as/APA

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