What is the tax-to-GDP ratio in Ethiopia?

What is the tax-to-GDP ratio in Ethiopia?

Theoretically as the tax to Gross domestic product ratio of the countries grow richer than others. This is due to the expansion of rule of law, increase of formal sectors, and increasing of the administrative capacity of the state would enhances which may result in tax payers to be increases in number and ratio to GDP which in turn raises the fraction raise the fraction of national income that is collected in taxation. Recently countries with sustained growth and economy experienced the decline of tax-to GDP ratio like in Indonesia, Kenya, Rwanda and Ethiopia. The trend is more visible particularly in Ethiopia.

What is the tax-to-GDP ratio in Ethiopia? It is defined as total amount tax collected as the percentages of total economic/country output. Tax to GDP ratio provides income generated from economy that flows to the state in the form of receipts. For instances if Kenya tax to GDP ratio was 20%, that imply that 20 out of every 100 shilling in Kenya would end up with the government in the form of tax receipt.

What does the tax-to-GDP ratio indicate?

Which country has the highest tax-to-GDP ratio? International different countries different economic structures and tax policy that align with their economy and output. Internationally top 4 country that takes the largest share of tax to GDP ratio is 1^st Belgium with 44.8%, 2^nd Denmark with 44.7%, and 3^rd Austria with43.5% closely follow France. Countries like Finland, Sweden and Norway recording scores of 42.7%, 42.6%, and 41.8%, respectively, also record high tax-to-GDP ratios.

What Factor derives Tax to GDP ratio in Ethiopia?

Internationally different factors play an important role in determining the tax to GDP ratio of the country like Economic policies, Tax administration and compliance I;e The efficiency of tax collection systems, size of informal economy to the total, level of tax evasion, and related, structure of the economy and its composition like sectors that have high share of tax like industry which tend to have higher ratio compared to rain fed/agriculture, and level of economy that composed of industrialization level  and urbanization level, finally but not least the Economic growth and performance of the country.

Pattern of Ethiopia’s tax-to-GDP ratio

Recently Ethiopia tax to GDP ratio is declining than other Sub-Saharan Africa in 2022/23 Ethiopia Tax to GDP ratio was 7.5% which is below the media 13.1% sub-Saharan Africa meaning from 1000 ETB only 75 birr is collected. As compared to other countries it is a large decline. In the same year, Uganda’s tax-to-GDP ratio was 13.1%, Kenya’s was 15.2% and Rwanda’s was 15.7%. Ethiopia reach the peak in tax to GDP ratio in 2014/15 since then tax to GDP ratio decline by 4.9 percentages overtimes which is the largest decline the continent and sub-Saharan Africa.

What factor contributed to Ethiopia’s tax-to-GDP ratio over time

• Recent shocks to the economy (COVID-19 and the Tigray Ethiopia conflict) .the shock to the economy result in a decline of investment, limit mobility product and services, which may result in a decline tax revenue source for the country. of major shocks like the COVID-19 pandemic; escalating conflict throughout the country, but most acutely in Tigray; and foreign exchange issues has highly impacted the both tax collection (the numerator) and economic output (the denominator).
• Major change in the structure of its economy in the last ten years;
• Less Compliance regarding tax collection and administration.

Top 20 TAX PAYERS IN ETHIOPIA 

Despite the above challenges, governments are planning to raise domestic revenue mobilization through different programs and initiatives. According the ministry, strengthening our domestic capacity to fund national priorities has become an urgent necessity. Aligning with these programs government honored 700 loyal taxpayers with the categories 105 Platinum-level, 245 Gold-level, and 350 Silver-level awardees, according to the Office of the Prime Minister. The highest taxpayers in Ethiopia is Telecom and Commercial Bank of Ethiopia which generated about 37.5 billion ETB IN 2017 Eth fiscal year and over the previous seven years Ethio telecom the giant state owned company generated over 157.5 Billion ETB to the government tax.

Following this The recognition highlights the telecom giant’s payment of ETB 37.5 billion in the 2017 Ethiopian fiscal year and its cumulative contribution of over ETB 157.5 billion to the national treasury over the past seven years. According to the Ministry of Revenue the combined effort made a total of 900.22 billion tax were collected during the fiscal year with target of 94.2% according to the office of revenue authority. the following table indicates top 20 Taxpayers during this fiscal year 2024/25

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