Ethiopia ‘Reaps Rewards of Tax Policy Reform’

ADDIS ABEBA – Revenue collection in Ethiopia has increased significantly after the government implemented tax reforms to boost resources, says a new African Development Bank or AfDB’s research.

The finding was revealed at a workshop hosted by the Bank and a high-level delegation from the Ethiopian government in Addis Abeba.
A study found that the introduction of electronic cash registers increased value added tax (VAT) collections and payments by about 32%, with variations by sectors of activity, size of firms and locations.
This increase can be considered large, said AfDB’s research.
However, it said 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 other government offices.
Similarly, an innovative study based on a randomized field experiment revealed that the threat of being audited could increase tax payments by 38%, while moral persuasion could increase collections by 32%.
These findings will expand the authorities’ tax reform policy options, particularly those related to voluntary compliance, said AfDB.
Authorities too called the studies timely.
The studies are “very timely and vital to complement the government’s reform efforts to enhance tax collection,” Ahmed Shide, Minister of Finance, said at a meeting attended by Adanech Abiebie, Minister of Revenue.
The Bank was represented by Gabriel Negatu, who claimed that evidence-based policy dialogue was in line with the institution’s ambition to become Africa’s premier knowledge institution.
AfDB said it will seek to provide technical assistance to support the authorities in implementing the research findings.

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