Ethiopia reaps rewards of tax policy reform, according to research from the AfDB

Ethiopia

Revenue collection in Ethiopia has increased significantly after the government implemented tax reforms to boost resources.

These findings were revealed at a workshop hosted by the African Development Bank and a high-level delegation from the Ethiopian government.

A study found that the introduction of electronic cash registers increased value-added tax (VAT) collections and payments by about 32 per cent, with variations by sectors of activity, size of firms and locations.

This increase can be considered large.

However, given the low tax base, there is significant scope to mobilize domestic resources by accelerating reforms, notably on the use of third-party information on taxpayers, promoting electronic tax filing and payment systems, and enhancing analytical capacity using comprehensive national databases.

The workshop formed part of the Bank’s commitment to helping the government fund its ambitious development plans.

In this regard, the Bank conducted original research to evaluate the impact of major tax policy reforms in Ethiopia, in collaboration with the Ethiopian Development Research Institute (EDRI) and the Ministry of Revenue and the Ethiopian Customs Commission (formerly Ethiopian Revenue and Customs Authority).

The research findings were discussed during a half-day dissemination workshop in the Ethiopian capital, Addis Ababa.

Similarly, an innovative study based on a randomised field experiment revealed that the threat of being audited could increase tax payments by 38 per cent, while moral persuasion could increase collections by 32 per cent.

These findings will expand the authorities’ tax reform policy options, particularly those related to voluntary compliance.

In his opening remarks, the Minister of Finance, Ahmed Shide, said the studies were “very timely and vital to complement the government’s reform efforts to enhance tax collection.”

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Other government officials at the workshop included Adanech Abiebie, Minister of Revenue, Dr Eyob Tekalign, State Minister of Finance, and Zemdie Tefera, State Minister of Revenue.

The Bank was represented by Mr Gabriel Negatu, Director General; Dr Abdul Kamara, Country Manager; Dr Abebe Shimeles, Division Manager; and Mr Francois Nkulikiyimfura, Chief Governance Officer.

Negatu said the evidence-based policy dialogue was in line with the institution’s ambition to become Africa’s premier knowledge institution.

The African Development Bank will seek to provide technical assistance to support the authorities in implementing the research findings.

The assistance will complement ongoing advisory services to support reforms, notably to the Public-Private Partnerships Framework and the logistics sector.

Additional assistance is being designed to advance financial sector development, industrial policy and strategy development, and the mining and petroleum sectors.

Beyond implementing the emerging policy recommendations, the Ethiopian government and the African Development Bank pledged to explore additional areas for impactful policy research on domestic revenue mobilisation, in line with the mutual commitment to improving the quality of life of the people of Ethiopia.

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