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Ethiopia’s Tax Revenues Sink to 7.5% of GDP, Leaving Billions on the Table

Ethiopia’s Tax Revenues Sink to 7.5% of GDP, Leaving Billions on the Table

7 months ago | 1 min read

Ayu Beteseb

By Ayu Beteseb

Addis Ababa — Ethiopia’s tax haul has collapsed to just 7.5% of GDP, the lowest in more than a decade and among the weakest in Sub-Saharan Africa, raising urgent questions over how the government will fund its post-war reconstruction and ambitious growth plans.

The figure for the 2022/23 fiscal year puts Ethiopia far behind regional peers like Uganda (13.1%), Kenya (15.2%), and Rwanda (15.7%), and well short of the SSA median of 13.2%, according to a new World Bank–backed analysis.

From Peak to Plunge

Tax revenues once peaked at 12.4% of GDP in 2014/15, but have since slid almost five percentage points. Four sources account for nearly all of the decline:

  • Value-added tax (VAT): −2.0 points
  • Customs duties and surtax: −1.1 points
  • Corporate income tax: −0.74 points
  • Employment income tax: −0.36 points

“These are the workhorses of the tax system,” the report notes. “When they falter, the whole system feels it.”

A Fragile Tax Base

Ethiopia’s revenue structure is unusually exposed to imports and public-sector spending, which together generate about 60% of federal tax income. As imports slumped and public investment was slashed in recent years, tax receipts fell almost mechanically.

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