July 19, 2024

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Tax reforms in Ethiopia

Ethiopia Revamps Tax System with New Levies and VAT Expansion

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Yesterday, on June 11, 2024, the Finance Minister, Ahmed Shide, explained the budget to the lawmakers. The Ethiopian government presented a budget proposal for the upcoming fiscal year 2024–25. The Ethiopian government is seeking to generate an additional 92.5 billion birr in tax revenue by introducing new tax categories and expanding the tax base.

Moreover, the federal government’s budget for the 2025 fiscal year totals 971.2 billion birr, representing a 21.1% increase compared to the previous year. The minister presented a detailed breakdown of the budget, highlighting a regular budget of 451.3 billion birr and a capital budget of 283.2 billion birr. Furthermore, the minister emphasized that 14 billion birr has been allocated to regional governments to support sustainable development initiatives, and 236.7 billion birr has been allocated for the budget support of national regional governments. Read More…

Finance Minister Ahmed Shide, during his presentation to lawmakers, outlined the government’s strategy to raise additional funds through tax reforms. The government plans to make changes to the value-added tax (VAT) and excise tax laws and introduce new taxes like property and green levies.

The government aims to collect 502 billion birr from taxes. They also expect to get 61.4 billion birr from other sources, such as income from investments. Additionally, they anticipate receiving 49 billion birr in the form of grants from external organizations.

Despite the challenges, the government is counting on tax revenue to be the primary source of income for the upcoming fiscal year, accounting for 51.7% of the total budget.

During the budget presentation to lawmakers, Finance Minister Ahmed explained the need for tax reforms. He pointed out that government revenue has been negatively impacted in recent years due to factors such as conflict, instability, and the loss of industries, as well as the discontinuation of budgetary support from international partners.

The federal government’s budget plan aims to collect 440.2 billion birr in tax revenue. As of the end of the first nine months, they have collected 313.9 billion birr, which is 71.2% of the target. Based on this performance, the Ministry of Finance expects the total tax revenue collection for the year to reach 92.5% of the planned amount, leaving 33 billion birr remaining.

Additionally, the shared tax revenue collected by the federal government and transferred to the regions in the first nine months increased by 26% compared to the same period in the previous fiscal year, reaching 54.3 billion birr.

To address financial challenges, the government is implementing tax reforms. One key change is the expansion of the value-added tax (VAT) to include previously untaxed goods and services. This move aims to broaden the tax base and increase revenue.

Another significant change is the revision of excise tax regulations. This will involve adjusting tax rates for specific products, such as alcohol. In the upcoming fiscal year, two new taxes will be introduced. The green tax will target vehicles to reduce carbon emissions and increase revenue. The property tax will standardize property taxation nationwide, ensuring a fair and consistent system.

The draft bill has received the approval of the Council of Ministers and has been forwarded to the House of Peoples Representatives for their review and final approval.