- Ethiopia plans to increase VAT from 15% to 17.5% to address low tax-to-GDP ratio and declining government revenue.
- A study shows Ethiopia’s VAT rate is lower than many East African countries, with the regional average at 17.5%.
- The increase and removal of VAT exemptions could add 0.4 percentage points of GDP, translating to about USD 624 million in additional revenue.
- Ethiopia’s tax-to-GDP ratio has dropped from 12.4% in 2014/15 to 7.5% in 2022/23 due to economic changes and low tax compliance.
- The VAT hike aims to improve fiscal stability but may cause inflation, affecting household purchasing power.
- Analysts suggest a phased approach with subsidies for low-income households to mitigate negative effects.
- Aligning VAT with regional standards could improve revenue and signal commitment to fiscal reform.
- Business groups emphasize the need for improved compliance and reduced administrative burdens to avoid informal economy growth.
- The Ministry of Finance has not set an implementation date, and the proposal will face parliamentary debate.
Source: addisinsight.net
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
