Finance Ministry Seeks To Scrap Blanket Tax Holidays, Introduce Startup And Green Incentives

The Ministry of Finance has unveiled plans for a sweeping overhaul of its investment incentive regime, proposing to slash traditional tax holidays and introduce benefits geared towards exporters, startups, and green-energy projects.

The draft regulation slated to replace the version introduced just four years ago aims to make eligibility for Ethiopia’s tax and customs benefits performance based, transparent, fiscally sustainable and curb indiscriminate exemptions rewarding measurable economic outcomes.

The working regulation provides two to six years of total exemption for industries requiring vast human capital, with an additional two years for exporters who ship more than 60 percent of their products abroad.

It also offered blanket grace periods regardless of actual performance or reinvestment record.

The new draft, however, completely replaces that model.

According to the draft, investors engaged in exports will no longer enjoy full income-tax exemptions. Instead, the regulation introduces a reduced-rate structure: exporters operating outside ‘Special Economic Zones’ (SEZs) are taxed at 10 percent of taxable profit, while those within SEZs pay five percent, effectively ending automatic multi-layer tax holidays.

The clause contains no mention of time-bound exemptions, signaling a definitive policy shift toward continuous, performance-linked taxation rather than temporary tax holidays.

SEZs retain investment privileges but the draft introduces minimum-capital conditions. To qualify, developers must demonstrate at least USD 75 million in investment, and projects must meet other requirements put forth in the SEZ Proclamation.

This replaces the open eligibility of the previous regime, which granted SEZ access at far lower thresholds.

A major innovation in the revised draft is the introduction of explicit incentives for startups — a category absent from the 2022 regulation. It grants registered startups a  five percent income-tax rate for ten years and dividend-tax exemption for five years.

Investors building or financing startup hubs will also benefit from capital-gains-tax and minimum-tax exemptions while losses incurred can be offset against future tax obligations for up to three years.

Another newly introduced provision offers reduced income tax rates for renewable-energy users. Investors whose production processes use at least 50 percent renewable energy will pay 15 percent corporate tax for five years.

Projects verified by the Ministry of Water and Energy or the Environment, Forest and Climate Change Authority as carbon-credit or emission-reduction ventures may extend the benefit to 10 years.

The draft introduces a detailed table revising capital-allowance percentages—the deductible value investors can claim for depreciation of machinery and infrastructure. For agricultural mechanization tools, for instance, the first-year allowance is set at 50 percent, with the remaining 25 percent spread annually on the balance. This is narrower than the 2022 scheme, which allowed up to 60 percent upfront deduction for certain sectors.

The proposed amendment bill also introduces incentives for scientific research, allowing businesses to deduct expenses incurred on scientific or technological research directly related to production from taxable income.

On the other hand, transparency and monitoring provisions have also been expanded. Implementing agencies—the Ministry, Customs Commission, and Ethiopian Investment Commission—will be required to track incentives quarterly.

It also mandates all beneficiaries to submit detailed quarterly reports showing benefits obtained and progress made.

While the draft authorizes the Ministry to reclaim benefits improperly granted or used for unintended purposes, it also requires the government to publish annual summary reports of all incentives granted, integrating them into the national fiscal report presented to Parliament.

Ministry officials have scheduled a public discussion for the coming Tuesday to collect input from regional administrations, business associations, and investors before the final version proceeds to the Council of Ministers.