Ethiopia’s Tax Policy Reforms yield fruits

Ethiopia’s tax reforms had several objectives, chief of which was to generate sufficient revenues from tax to finance public expenditure on poverty alleviation programs and development projects. The idea was to streamline the tax system to gather revenue from the country’s economic growth.

According to the African Development Bank (AfDB), Ethiopia’s tax policy reforms have yielded significant increase to revenue collection in the country. AfDB embarked on a study and revealed its findings during a workshop with high-level delegation from the Ethiopian government present.

AfDB has expressed its commitment to help the Ethiopian government fund its development plans, and this workshop was an expression of this commitment. The study was conducted to review the impact of the country’s major tax policy reforms, and some of the findings include:

  1. Value added tax (VAT) collection and payments increased by about 32% following the introduction of eCash registers as part of reforms in the country.
  1. Threat of being audited could increase tax payments by 38%
  1. Moral persuasions could increase tax collections by 32%

The increase in value added tax collection, while laudable, can also be improved upon, as suggested by the study. Given the low tax base, there is significant scope to mobilize domestic resources by accelerating reforms, notably on the use of third-party information on taxpayers, promoting electronic tax filing and payment systems, and enhancing analytical capacity using comprehensive national databases.

AfDB conducted this research in partnership with the Ethiopian Development Research Institute (EDRI) and the Ministry of Revenue, and the Ethiopian Customs Commission (formerly Ethiopian Revenue and Customs Authority).

Beyond the study, AfDB seeks to provide technical assistance to implement findings from the research and complement ongoing advisory services. Both the Ethiopian government and African Development Bank have pledged to explore additional areas for impactful policy research on domestic revenue mobilization.

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