MoTRI Clarifies No New Taxes as 15 Percent VAT Looms Over Fuel Prices

The Ministry of Trade and Regional Integration has issued a statement clarifying recent misinformation suggesting that new taxes have been imposed on fuel sales. While the Ministry insists that no new taxes or subsidies are currently being applied, a recent report by Sheger 102.1FM reveals that the government’s 2025/2026 draft budget plans to introduce a 15 percent value-added tax (VAT) on fuel products starting July 2025.

This clarification comes amid growing public anxiety and widespread rumors circulating on social media, which have contributed to unnecessary panic and long queues at gas stations across the country. The Ministry urges the public to rely on verified information and assures that fuel supply remains stable and sufficient.

Ethiopia has been gradually reducing its domestic fuel subsidies since June 2022, a process designed to align local fuel prices with global market rates. This phase-out was initially targeted to conclude by June 2023 but was extended due to macroeconomic reforms, including a significant adjustment in the foreign exchange rate, which pushed domestic fuel prices upward.

To mitigate the impact on vulnerable populations, the government introduced a targeted subsidy package in July 2024, focusing support on low-income households. Despite these efforts, the wide price gap between Ethiopian fuel prices and those of neighboring countries has fueled smuggling and illegal trade, prompting the government to accelerate subsidy removal.

Subsidies on gasoline and jet fuel were removed starting May 9, 2025, with the de-subsidization of white diesel and other petroleum products following on June 4, 2025. Since then, all fuel prices have been fully determined by international oil market dynamics.

However, the government’s plan to impose a 15 percent VAT on fuel products from July 2025, as outlined in the draft budget, is expected to place additional financial pressure on consumers already facing rising living costs. The VAT is projected to generate over ETB 3 billion in revenue for the federal government, alongside additional VAT revenues from other basic commodities such as sugar and salt.

The Ministry acknowledges the challenges posed by these reforms but emphasizes their necessity in improving fiscal sustainability and reducing market distortions. It also reiterates its commitment to protecting vulnerable groups through targeted subsidies and social safety nets.