For years, the Ethiopian government has relied heavily on external funding and printing substantial amounts of money to fill the financial gap between its revenue and expenditures. To address this persistent issue, the government has been introducing new economic policies and legal frameworks and the latest initiative become the proposed asset tax policy, which, according to the Ministry of Finance, is nearing public introduction.
Recently, the Ministry presented the draft policy to the Plan, Budget, and Finance Standing Committee of the House of Peoples’ Representatives. During the discussion, the taxation system was criticized for failing to address revenue expectations. More efficient tax collection could stabilize the economy and reduce the need for unsustainable measures.
Similarly, Revenue Minister Aynalem Nigusie, during her discussion with various state government representatives for revenue affairs, emphasized the importance of fostering a culture of fair tax payment. “The government’s revenue collection system is becoming more efficient. The amount of revenue collected in recent months is significantly higher than in the same period last year,” she noted while recognizing the tax collection performance is still below the target.
Earlier this year, while presenting the government’s 2024/25 fiscal plan to the House of Peoples’ Representatives, President Taye Atske-selassie projected Ethiopia’s economy to grow by 8.4%. Revenue from both tax and non-tax sources is expected to reach 1.5 trillion Birr.
Within the past four months, the total amount of the government revenue has recorded 312 billion Birr, 61 percent greater than the past years’ same months’ performance, according to Ministry of Revenue.
Despite the fact that this low tax-to-GDP ratio is not unique to Ethiopia, it currently stands at 7%, among the lowest in Africa. Acknowledging this deficit, the government is implementing mechanisms to ensure fair taxation and increase revenue, according to reports released last May by the Ministry.
At the 2024 UNECA Conference held in Botswana, UNECA Secretary General Claver Gatete remarked that Africa’s tax-to-GDP ratio, averaging 15.6%, is far below the global standard. He urged African nations to modernize their tax systems, expand tax bases to include the informal sector, and leverage digital technologies to seal loopholes and prevent illicit financial flows.
A marketing officer at Belayab Motors PLC, speaking anonymously, pointed out inefficiencies in Ethiopia’s Value-Added Tax (VAT) system. “In Kenya, the tax-to-GDP ratio is nearly double of ours. Employed citizens pay fair taxes, and the private sector complies better. Here, many wholesalers and retailers evade VAT, treating receipts as negotiable services. Such practices undermine revenue collection,” he said.
Ethiopia had aimed at increasing its tax-to-GDP ratio to 12.7% by 2022 but failed due to insecurity and tax mismanagement. Executive Director and board member of East African Holding, Bizuayehu Tadele, highlighted a lack of awareness among citizens. “A person earning one million Birr annually should pay an income tax of 350,000 Birr. This concept is unfamiliar to many Ethiopians. The government must take proactive and reactive measures to raise awareness about taxation,” he stated.
He also shared his personal observation, saying, “I was a public servant and understood the tax system. Surprisingly, my parents paid significantly less tax than I did, even though their income was higher. This disparity highlights the systemic faults in our tax system.”Improving Ethiopia’s tax collection and tax-to-GDP ratio is essential for building a resilient economy, he added.
BY YESUF ENDRIS
THE ETHIOPIAN HERALD WEDNESDAY 27 NOVEMBER 2024
