Tax reforms and tax revenues performance in Ethiopia

Tax reforms and tax revenues performance in Ethiopia

One of the main objectives of the Ethiopian tax reforms was to generate adequate tax revenues to finance ever increasing public expenditure on poverty alleviation and development projects. This would be achieved through streamlining of the tax system to mobilize tax revenues from national economic growth. The purpose of this article is to analyze and compare tax revenues performances of the two governments in power in Ethiopia during the last 39 years. Descriptive analysis is used to compare different categories of tax performance of the Derg and Ethiopian People’s Revolutionary Democratic Front (EPRDF) regimes. In public finance important measures that have been used to assess the responsiveness of a tax system in terms of tax revenues mobilization is tax to GDP ratio.

In light of these major tax categories of tax to GDP and total tax revenues ratios over the period of 1974/75 to 1912/13 (39 years) were computed and analyzed. In addition comparison has been made between pre and post tax reforms to compare tax system flexibility in terms of raising tax revenues during the EPRDF regime. The period after 2002/03 was considered as post comprehensive tax reforms years. The result shows that the comparison of two governments’ different categories of tax ratios shows a slight increment from an average 3.77 per cent to 9.95 during EPRDF period. Comparing pre and post-tax reforms during the period 1991/92 to 2012/13 the ratios of different category tax revenues show insignificant change for post comprehensive tax reform period. Comparing direct versus indirect tax categories, direct tax shows the tendency of declining contrary to the comprehensive tax reform main objective which gave due attention to increase the share of the direct tax to total revenues. The overall analysis reveals that tax reforms failed to boost total tax revenues and to bring tax structure change from indirect tax to direct tax.