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NewsTax overhaul to plug gap as funds fall short

Tax overhaul to plug gap as funds fall short

Officials bank on tax reforms, domestic revenue

In a bid to boost domestic revenue, the Ethiopian government is ramping up its tax reform initiatives.

With the newly unveiled budget relying heavily on taxes, the government is counting on the tax system to generate over 84 percent of the total revenue for next year.

Despite a modest 1.9 percent increase from the current year’s budget, the government has set aside a whopping 801.6 billion birr budget for the coming fiscal year.

To achieve this target, officials at the Finance Ministry plan to generate about 441 billion birr from tax and duty collection. This will make up a significant portion of the total revenue target of 520 billion birr, which also includes foreign grants that disappointed officials.

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Speaking at the budget hearing at the House of People’s Representatives (HPR) on June 8, 2023, Finance Minister Ahmed Shide emphasized the government’s commitment to strengthening ongoing tax reforms.

“Policies and regulations to support tax collection and inclusive economic growth will be applied,” Ahmed told lawmakers. “Revenue generation has been less successful than planned in recent years due to underperformance in tax collection as well as meager foreign support and grants.”

In addition to value-added and excise tax amendments this year, Ahmed indicated the application of social welfare development duty and excise stamps next year.

“We will introduce further reforms to bring meaningful changes to tax administration as well,” he said in his remarks.

As the Ethiopian government seeks to address its budget deficit, projected to reach 281 billion birr in the next fiscal year, and meet its revenue collection targets, reforming tax administration has emerged as a key priority.

Officials are considering a range of measures, including the reorganization of human resources at the Ministry of Revenue and the Ethiopian Customs Commission.

With a target of collecting 520 billion birr in revenue this year, the government is also exploring non-tax revenue sources to make up for the shortfall. These include external support from development partners, which has fallen short of expectations as the war in north Ethiopia soured relations with western donors.

“The planned budget support did not fully materialize. Support from development partners has also shrunk drastically,” the Minister said.

[speaker]
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