‘Cities Finance Strategy’, a new document tabled to the Ministry of Finance, mandates cities and towns to cover at least 70 percent of their capital and recurrent expenditures from internal revenues.
The strategy identified six revenue sources, including property tax, road fee, lease, rents, business fee and hotel service fees to enable cities cover up to 80 percent of their expenses. The new strategy envisages fiscal decentralization, as cities struggle to maintain programs amidst depleting foreign aid.
“Most of the cities and towns in Ethiopia have been financed by foreign aids and supports. For instance, cobblestone roads have been financed by the World Bank. From now on, cities must cover the costs by themselves,” said Zinet Ibrahim, general manager of the Cities’ Revenue Reform Project Office, at the Ministry of Urban and Infrastructure Development (MoUID). “We can no-more rely on external financing. Budgetary support from the federal cannot meet cities’ fast growing financial demands in infrastructure, social programs and institutional expansions.”
There are over 2,000 towns in Ethiopia, fulfilling the 10,000 minimum population thresholds. “Municipality revenue in Ethiopia is insignificant because their service is very poor. If municipalities can provide better services especially for the private sector, they can charge more, and generate more state revenues,” added Zinet.
Currently MoUID is running pilot projects in Bahir Dar, Dire Dawa, Adama andMekelle, which was initially included in the project, but later dropped out due to the conflict. The ministry is also studying to introduce road fees similar to the Addis-Adama express way.
According to Zinet, the project office has submitted a draft Property Tax Proclamation to the MoF, which is awaiting the government’s decision.
The project office, which was established six yearsago underthe former Ministry of Urban Development and Construction (MoDUC), has been studying property tax for the past four years. It designed property tax as a revenue component to enable all cities and towns to be able to cover 70percent of their annual expenses from their own revenues. The office submitted the ‘cities’ finance strategy’, to the MoF and is awaiting approval.
“Property tax is the biggest revenue source in other countries. We cannot overlook such potentials now. There is property tax but people pay two or three birr per year. Now it will be based on property evaluation,” said an official close to the issue, who spoke to The Reporter, on conditions of anonymity.
Hence, properties like buildings, hotels, factories and industries, will be taxed based on their evaluations. MoUID, which is developing a new technology to collect property tax, has already begun evaluations especially on hotel properties. Bahir Dar, Dire Dawa, and Addis Ababa universities are also nearing to graduate the first batch of property evaluators with a master’s degree.
In his previous interview with The Reporter, Eyob Tekalign, state minister of finance confirmed that property tax will be introduced.
If approved, the Property tax proclamation will replace a similar proclamation introduced during the Derg regime, which has neither been replenished nor amended.