The Ministry of Revenues has introduced a new draft Value Added Tax (VAT) Refund Directive designed to align with last year’s VAT Proclamation amendments, proposing major changes to refund eligibility, investment classification, and exporter benefits.

A key revision redefines “heavy investment” from the previous Directive 148/2019 standard of projects costing at least USD 100 million to a new dual threshold of either Birr 100 million or USD 100 million, maintaining the three-year project phase. Experts warn this could create confusion over whether the distinction between currencies is deliberate or an error.

The draft also modifies export refund rules, allowing exporters to reclaim 50% of input expenses, up from the current 25% limit, but some analysts believe the new method may disadvantage exporters. Refund eligibility for taxpayers engaged in mixed transactions is tightened, raising the taxable transaction threshold from 90% to 95%.

Additionally, contractors for condominium housing projects and capital goods lease financiers will no longer qualify for refunds.

On the procedural side, the draft removes the bank payment documentation requirement and broadens eligibility for embassies, NGOs, and international organizations. Overall, the directive aims to modernize and simplify VAT refund processes while tightening compliance standards.

Source: Capital News Paper