Addis Abeba – Ethiopia is moving ahead with tax reforms aimed at boosting revenue, with new measures to streamline exemptions and close corporate tax loopholes, according to the International Monetary Fund (IMF).
In its latest country report released on 29 January, 2025, the IMF revealed that the Ethiopian government is “finalizing a directive to streamline and eliminate tax exemptions for imported intermediate inputs for new local and foreign investments.”
The report also noted that tax policy assessments are “progressing as planned,” with a specific focus on “closing gaps in the corporate income tax regime” and “streamlining the presumptive tax system for small and unincorporated businesses.”
According to the IMF, revenue-generating motor vehicle ownership taxes are expected to take effect in the 2025/26 fiscal year.
Additionally, the organization disclosed that the government is considering “updates to minimum exemptions for personal income tax,” aiming to enhance “equity and efficiency while minimizing revenue losses.”
These revenue-enhancing measures are part of the macroeconomic reforms that the Ethiopian government has committed to implementing following an agreement with Bretton Woods institutions, aimed at securing urgently needed foreign currency-denominated loans.
In July 2024, the IMF’s Executive Board approved Ethiopia’s request for a four-year arrangement under the Extended Credit Facility (ECF) to support the government’s Homegrown Economic Reform Agenda. This decision was followed by the Ethiopian government’s move to transition the country to a market-based foreign currency regime, abandoning the previous crawling peg exchange rate system.
On 17 January, 2025, the IMF announced the completion of its second review of Ethiopia’s $3.4 billion ECF arrangement, paving the way for an immediate disbursement of approximately $248 million. This approval brings total disbursements under the program to $1.611 billion.
While presenting the budget bill for the current fiscal year to Parliament in July 2024, Finance Minister Ahmed Shide announced that the government is preparing to introduce new tax categories and expand the tax base. These measures include amendments to the existing value-added tax (VAT) and excise tax laws, along with the introduction of new levies, such as property taxes and environmental taxes.
In his inaugural address to the joint session, President Taye Atske-Selassie outlined the government’s principal objectives for the current fiscal year, stating, “The government’s key objectives for the current fiscal year are to raise government revenue to 1.5 trillion birr.”
However, these tax reforms have encountered resistance, including from legislators. When the House of Peoples’ Representatives approved the draft Property Tax Proclamation two weeks ago—imposing a new levy on urban land, land improvements, and buildings—Members of Parliament (MPs) voiced concerns about the financial strain on fixed-income earners and civil servants, who already face multiple tax obligations.
Desalegn Chane (PhD), a representative of the National Movement of Amhara (NaMA), contended that introducing an additional tax was unnecessary given the annual tax collection levels.
Recently, the government announced that it had collected over 451 billion birr during the first half of the 2024/25 fiscal year. According to Aynalem Nigussie, the Minister of Revenues, the overall performance exceeded that of the same period in the previous year by 106.7 billion birr, representing an increase of 110%.
The same concern was raised on 12 December, 2024, during parliamentary discussions with stakeholders on the draft Property Tax Proclamation and its provisions. During the session, Ewnetu Alene, Chairperson of the Standing Committee on Democratic Affairs, expressed concerns about the potential burden the tax could place on vulnerable groups.
“In our country, the majority of taxes are imposed on low-income individuals, particularly urban residents and government employees,” he remarked. “Are we improving the tax system by overburdening these segments of society? Shouldn’t we instead impose higher taxes on those owning extensive land and properties to better support low-income citizens?”
Last month, Addis Standard reported that Ethiopia’s ambitious economic reforms, designed to increase government revenue and address macroeconomic challenges, have significantly impacted low-income households, exacerbating the rising cost of living and persistent inflation. Civil servants and fixed-wage earners describe the situation as increasingly unsustainable.
According to the article, economic measures such as higher electricity tariffs, revised tax laws, and increased service fees have further strained household finances. While the government has implemented measures to curb inflation and adjust public sector salaries, experts also caution that these reforms disproportionately burden lower-income groups.
In its most recent country report, the IMF cautioned that inflation is projected to peak at approximately 25% between mid- and late 2025, before declining to single-digit levels by 2028.
Official statistics indicate that headline inflation decreased to 17% in November 2024, down from 19% in September, with declines observed in both food and non-food inflation.
“Socio-economic conditions remain challenging, characterized by high inflation, food insecurity in certain regions, ongoing conflict, and displacement affecting millions of people,” the IMF stated.
The report further noted, “Key downside risks include persistent inflation or depreciation expectations, security concerns or social unrest, policy slippages, and commodity price volatility.”
While the IMF acknowledged that tightening policies and economic adjustments are likely to constrain near-term economic activity, it emphasized that policy reforms are “expected to support higher growth” and contribute to the continued “easing of inflation” over the medium term. AS
