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Home Ethiopia

Ethiopia is considering tax framework revision

Revision to create conducive tax environment and the public revenue system

Metassebia Hailu Zeleke by Metassebia Hailu Zeleke
August 30, 2021
in Africa, Ethiopia, Legal, Legislation, Tax
Reading Time: 2 mins read
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Only 10 out of 2000 Tanzanian companies pay mining taxes
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The Ethiopian tax frameworks are under a serious revision that includes but is not limited to the income tax system, the value-added tax (VAT), the turnover tax, and other tax frameworks. The main purpose of the revision is to create a conducive tax environment and a public revenue system.

It is assumed that the revision process will enhance investment and create smooth capital flow by boosting trade appetite and creating job opportunities.  It further assumed that the reconsideration will create room and benefit consumers of the country. It is noted that the revision will consider two perspectives. These are administrative and policy-wise considerations. The possible changes will then be issued as a policy framework and administrative framework amendments by resolving the gap between governance and policy.

Also read: Ethiopia should create a strong security system for its upcoming stock market

Although opinions about what makes a good tax system will vary, there is general consensus that the below-stated basic conditions should be maximized to the greatest extent possible.  These basic conditions are fairness, adequacy, simplicity, transparency, and administrative ease.

  1. Fairness, or equity, means that everybody should pay a fair share of taxes. There are two important concepts of equity: horizontal equity and vertical equity. Horizontal equity means that taxpayers in similar financial conditions should pay similar amounts in taxes. On the other hand, vertical equity means that taxpayers who are better off should pay at least the same proportion of income in taxes as those who are less well off.
  2. Adequacy means that taxes must provide enough revenue to meet the basic needs of society. A tax system meets the test of adequacy if it provides enough revenue to meet the demand for public services, if revenue growth each year is enough to fund the growth in the cost of services, and if there is enough economic activity of the type being taxed so rates can be kept relatively low.
  3. Simplicity means that taxpayers can avoid a maze of taxes, forms, and filing requirements.  A simpler tax system helps taxpayers better understand the system and reduces the costs of compliance.
  4. Transparency means that taxpayers and leaders can easily find information about the tax system and how tax money is used.  With a transparent tax system, we know who is being taxed, how much they are paying, and what is being done with the money. We also can find out who (in broad terms) pays the tax and who benefits from tax exemptions, deductions, and credits.
  5. Administrative ease means that the tax system is not too complicated or costly for either taxpayers or tax collectors. Rules are well known and fairly simple; forms are not too complicated; the state can tell if taxes are paid on time and correctly, and the state can conduct audits in a fair and efficient manner. The cost of collecting a tax should be very small in relation to the amount collected.

We hope that the Ethiopian tax revision effort will consider the challenges that the business community already has and facilitate a comfort zone for taxpayers by considering the main characteristics of effective tax systems in the world.

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Metassebia Hailu Zeleke

Metassebia Hailu Zeleke

Metassebia Hailu Zeleke is a PhD Student in African Studies specializing in Citizenship and Mobility in Africa at Addis Ababa University. He is from Law background and currently operating as Consultant & Attorney-at-Law by serving as a legal counselor to different corporate entities, foreign investors and international law firms. By now, he is Vice President of the Ethiopian Lawyers Association and also serving as Editorial Board Chairman of the peer-reviewed “Ethiopian Bar Review” Journal as well as editorial team chairman of the Ethiopian Lawyers’ voice called temuagach “ተሟጋች” newsletter. He is also serving as Management Board member in different organizations including the Ethiopian Shipping and Logistics Services Enterprise. He is also a part-time instructor at Unity University. Internationally, he is serving as a Research Fellow to the China-Africa Legal Research Center and a Consultant to the China Center for Legal Diplomacy. He has also different international recognition including appointment of “Ambassador for Peace” by the Universal Peace Federation (2011), recipient of a fellowship program at the Law School of Beijing Foreign Studies University (Beijing, 2014), recipient of the China-Africa Lawyers Exchange Program (Beijing, 2014) and recipient of the Young International Lawyers Program by International Bar Association (Tokyo, 2014). He can be reached through metassebiahz@gmail.com or +251-911-636064

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