November 18/2019 Despite the reform on tax policy and the modernizing of the revenue administration, series of important decisions are needed to generate incremental income, a panelist at a tax knowledge exchange workshop said today.
Presenting his paper entitled “Tax Transformation Program: Achievements and Challenges”, Tax Transformation Office Head at the Ministry of Revenues, Addis Tamire said Ethiopia’s
tax-to-GDP ratio is currently 12 percent, below the 15 percent demanded to fund public services.
According to him, Ethiopia targeted a government spending of 2.3 trillion birr from 2015/2016 -2019/2020 fiscal years in order to help stimulate a broad-based economic growth.
Tax revenue is expected to supply 75 percent of this revenue, requiring that Ethiopia’s tax-to-GDP ratio improve to 17.2 percent at the end of 2019/20 budget year.
However, the tax-to-GDP ratio is currently 12 percent, Addis pointed out.
Noting that Ethiopia has recently unveiled a comprehensive tax reform to become an icon of prosperity in Africa and one of the top five countries by 2030, the panelist underscored that the tax and customs system in Ethiopia is however challenging.
Lack of peace and stability, decline in total consumption expenditure, sluggish structural economic transformation, prevalence of shadow economy and cash-based transactions as well as the endemic illicit trade and illicit financial out flows are among the major challenges for the taxation sector, he revealed.
Addis added that around 25-40 percent of the total Ethiopian GDP is under shadow economy, saying that “the economy is largely cash-based and this may be because of low financial inclusion.”
Acknowledging that illicit financial flows and contraband are the bottlenecks for tax revenue, the head disclosed that over 827 million birr of contraband was captured coming into the country and 179 million birr of contraband being smuggled out of the country in 2017/18 fiscal year alone.
The panelist observed that the transformation requests all the relevant stakeholder’s to sustainably work for the realization of Ethiopian tax system and thereby unlock revenues for the country.
The Ethiopian Tax Research Network (ETRN) organized the one-day workshop in collaboration with the International Center for Tax and Development (ICTD). It aimed at exchanging tax knowledge in Ethiopia and seek ways of mobilizing domestic resources for sustainable development.