A Critical Assessment of the Application of Ethiopian VAT on E-Commerce

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Addis Ababa University


This study was intended to assess how the current VAT system of Ethiopia is applicable on e-commerce transactions. The study was guided by the following objectives; analyze the prospects and weaknesses of the existing VAT law in taxation of e-commerce, take lessons from foreign jurisdictions on how to apply VAT on e-commerce transactions, and find out the challenges experienced and possible challenges ahead in the implementation of Ethiopian VAT system on e-commerce transactions. In order to conduct the research, the study uses qualitative method with the belief that it provides the most appropriate way of investigating the research questions. The necessary data to the study were collected from both primary and secondary sources all the way through using a combination of multiple data gathering instruments including interviews, review of relevant literatures and legislative documents. The study findings revealed that that there are challenges experienced in the application of the VAT legislations on e-commerce transactions. This includes, the problems of the buyer’s identification, establishing his location/residence and its statues (business or consumer) in e-commerce transactions, the inadequacy of the VAT Proclamation to define PE for e-commerce purpose, the absence of guidelines on acceptable records where goods are delivered, invoices issued and payments made by electronic means. Add to these is lack of proper and adequate resources, and their usage within the Tax Authority to monitor e-commerce transactions. Using the above findings, it implied that theoretical soundness of the VAT laws would not in itself suffice for the implementation thereof. Given that electronic commercial activity has been evolving with the development of technology, its application should also be technology-based. Accordingly, a clear provision as to what constitute PE for e-commerce purposes should be established, a special scheme, which would require foreign vendors involved in suppling electronic services to Ethiopian consumer to register should be established. What is more, for the sake of effective administration and collection of VAT revenue from e-commerce transactions, the cooperation of the Tax Authority with various stakeholders is advised. Keywords: e-commerce, Ethiopia, VAT, permanent establishment



e-commerce,, Ethiopia, VAT, permanent establishment