Ethiopia Eyes Tax Reforms to Enhance Nearly 1 Trillion Birr Budget for 2023/24

The Ethiopian government is considering implementing sweeping tax reforms to bolster its budget for the 2023/24 fiscal year, which is projected to hover around 1 trillion Ethiopian birr (approximately $19.3 billion). The reforms aim to streamline the tax system, enhance compliance, and broaden the tax base. According to Ministry of Finance officials, the current tax regime is overly complex and inefficient, leading to revenue losses and burdening taxpayers. Key proposals under consideration include: *

Consolidation of Taxes:

Merging multiple taxes into a single tax system to simplify compliance and reduce administrative costs. *

Digitalization of Tax Administration:

Digitizing tax processes, such as filing, payment, and audits, to improve efficiency and reduce corruption risks. *

Expansion of Excise Taxes:

Imposing excise taxes on a wider range of goods and services to generate additional revenue. *

Introduction of Property Tax:

Implementing a property tax to tap into the growing real estate market. *

Strengthened Penalties for Tax Evasion:

Introducing stricter penalties and enforcement measures to deter tax evasion and increase compliance. The government believes that these reforms will not only increase tax revenue but also foster a fairer and more equitable tax system. The additional resources are expected to fund crucial public services, infrastructure development, and social welfare programs. “Our tax system needs to be overhauled to reflect the economic realities of today,” said Haji Ibsa, Minister of Finance. “These reforms are designed to create a more efficient, equitable, and sustainable tax structure that will support our national development goals.” Industry experts have welcomed the proposed reforms but caution that their implementation requires careful planning and effective communication to ensure taxpayer understanding and support. The Ethiopian Revenue and Customs Authority (ERCA) is responsible for implementing the tax reforms and is working closely with stakeholders to ensure a smooth transition. The government aims to introduce the reforms gradually over the next few years, with the goal of having a fully reformed tax system in place by 2027.Federal Government Proposes New Tax Measures

Federal Government Proposes New Tax Measures

Addis Ababa

* The Ethiopian government has proposed a new federal budget of nearly 1 trillion birr for the upcoming fiscal year. * To generate additional revenue, the government plans to implement new tax categories and broaden the existing tax base. * The proposed budget includes significant spending on capital projects, recurrent expenses, regional subsidies, and sustainable development initiatives.

Revenue Generation

* The government aims to raise 92.5 billion birr in additional tax revenue through various measures. * These include amending the value-added tax (VAT) and excise tax laws, introducing new taxes such as property and green taxes, and broadening the tax base. * Non-tax revenues and foreign aid are also expected to contribute to the budget.

Tax Reforms

* The proposed VAT amendments seek to expand the tax base by including previously untaxed goods and services, especially e-commerce. * The excise tax review will involve adjusting rates for specific products, such as alcohol. * A new green tax will target vehicles to generate revenue and reduce carbon emissions. * Property taxes will be standardized nationwide, with regional administrations and municipalities collecting designated amounts.

Concerns and Challenges

* Some lawmakers have expressed doubts about the feasibility of achieving the planned tax revenues, especially given the current instability in parts of the country. * The restoration of stability is seen as crucial for successful tax collection. * Concerns have also been raised about potential financial waste due to corruption and mismanagement. * Lawmakers emphasize the importance of ensuring accountability and transparency in budget allocation.

Ethiopia Targets Tax Reforms to Enhance Budget

Ethiopia’s government plans to implement comprehensive tax reforms to augment its budget for the upcoming fiscal year. The proposed reforms aim to generate an additional 1 trillion Ethiopian birr (approximately $24 billion). The Ministry of Finance has outlined several measures, including introducing new taxes, increasing rates on existing taxes, and enhancing tax administration. The government believes these reforms will significantly boost revenue and support its economic growth objectives. One of the key elements of the reforms is the implementation of a value-added tax (VAT) on essential goods and services. The government aims to expand the VAT base by including commodities such as food and beverages. Additionally, the reforms propose raising the income tax rate for high-income earners and corporates. The government believes this will ensure fairer distribution of the tax burden and generate more revenue. The government also plans to strengthen tax administration through improved record-keeping, enhanced data sharing, and stricter enforcement measures. This will help curb tax evasion and improve compliance. The proposed reforms are expected to impact various sectors of the economy. Businesses and consumers will likely face higher tax liabilities, while the government gains increased funding for public services, infrastructure development, and economic growth initiatives. The implementation of these reforms is expected to commence during the next fiscal year, which begins in July 2023. The government will engage with stakeholders and seek public feedback to ensure the reforms are equitable and sustainable.