The federal government is preparing to impose a 15 percent value-added tax (VAT) on fuel sales beginning in July, marking a shift in the country’s fuel pricing policy. This move aligns with the government’s plan to fully liberalize fuel prices based on international market rates and phase out longstanding subsidies.

The decision comes as part of broader fiscal reforms outlined in the federal government's 2025/26 draft budget. According to the proposed budget, the administration aims to generate more than Birr 3 billion in revenue by applying the 15 percent VAT on fuel and fuel-related products.

The policy change follows months of gradual subsidy reductions, as the government works to reduce its financial burden and align domestic fuel prices with global trends. Officials have indicated that the complete removal of fuel subsidies is a key component of the government’s economic strategy.

In addition to fuel, the 2025/26 draft budget also includes plans to collect Birr 1.9 billion in VAT from sugar sales and Birr 337 million from salt. Both sugar and salt, along with fuel, were previously subsidized and exempt from VAT as part of the government’s effort to maintain affordability for essential goods.

If approved by parliament, the budget could mark a significant turning point in how essential commodities are priced and taxed, with potentially wide-ranging effects on household expenses and market dynamics.

Source: Sheger FM 102.1