The House of Peoples’ Representatives (HPR) and the House of Federation (HoF) will decide on who should have the authority to collect property tax at their upcoming annual joint session, which will take place in two weeks.
The standing committees of the two houses are preparing a proposal to be presented to the members regarding who should be responsible collect property tax.
The houses are expected to designate property taxes as a mandate to regional governments or a concurrent power with the federal government with a two-thirds majority vote.
If the power to collect property taxes is given to regions, they will each draft their own property tax proclamation and start levying it. The HoF disclosed that if the houses decide to make the levy of property tax a concurrent power of both regional and federal governments, the federation will start working to determine how revenues will be shared between the two. The Ministry of Finance is expected to come up with a bill to govern how the tax will be shared, in parallel.
The newly proposed property tax is one of the six income sources suggested by the Ministry of Urban Development and Infrastructure to improve the revenue of cities and enable them to cover up to 70 percent of their infrastructure needs by themselves.
It is also in the federal government’s plan to amend its tax policy to widen its source of revenue and fill its historic high 309 billion birr budget deficit projected for the existing fiscal year.
Even though the federal government is expecting to increase its revenue by sharing the property tax that is planned to be levied, especially on buildings in cities, the power of collection must be designated first.
The Constitution that listed types of taxes and designated the power of collection as federal, regional, and concurrent did not mention property taxes. It provides that it will be determined by the two-thirds vote of the two houses.
The HoF held a discussion with relevant stakeholders on the matter this week in the presence of higher officials such as Eyob Tekalign (PhD), State Ministry of Finance.
The discussion was a platform to collect perspectives for both houses before preparing their proposal that will be presented at the houses’ joint session, according to Wakitole Dadi, directorate of Fiscal Affairs and Regional States Development Equalization.
“We both prepare our own decision proposals, listing one or two options on the matter. But since we are both following the same pattern, I think there will not be much difference in our suggestions,” Wakitole said.
If the houses vote to make the power of tax collection concurrent, the HoF will decide on the share of the federal and regional governments’ tax revenue. It will also advise regions on how much percentage of revenue should go to municipalities.
Since the Ethiopian constitution does not recognize municipalities’ tax collection power, the House does not have the authority to decide on the share of municipalities, leaving the power of making the decision to the regional states, according to Wakitole.
Even though the HoF is expected to start working on determining the division of revenues derived from property tax based on the outcome of the joint session, the Ministry of Finance has already suggested its own division of revenues.
The ministry expects to source 25 percent of the revenue collected from property tax for the federal government while the remaining 75 percent goes to regional states, according to the ministry’s budget document presented to the HPR last May.
However, the House will determine the division based on its own consideration, according to Wakitole.
“We are the only ones who have the authority to determine the division of revenue. What the ministry presented is an opinion,” he said.
In the 2021/22 fiscal year, the federal government collected 336.7 billion birr in tax revenue.
The federal government’s total tax revenue showed 18.3 percent increase from 2019 to 2021. Despite accounting for 79.3 percent of total government revenue, tax revenue’s share of GDP has decreased over the last three years. In 2018, the share of tax revenue from the gross domestic product was 10.7 percent, but fell to nine percent in 2021.
The federal government plans to collect 334 billion birr in revenues in the current fiscal year.
An expert in tax law who asked to remain anonymous said that property tax should not be designated as a regional or concurrent tax since it is a local tax collected by municipalities in most countries.
With regard to property tax, the role of the government should be to design and guide the legal framework and give technical advice for its implementation, according to the expert.
“Even though the initial idea of the property tax was to help municipalities cover their own expenses, forwarding a suggestion of revenue division to the federal government seems to be an option to widen its own source of revenue,” he said.