Despite the already battered economy due to the Novel Coronavirus (COVID-19), the government relies heavily on tax revenues and hopes to cover 57pc of the next federal budget from taxes.

Legislated unanimously in the presence of 345 MPs, the federal budget of the newly started fiscal year allocated 160.3 billion Br for capital spending and 133.3 billion Br for recurrent expenditures. Regional states will get 176.4 billion Br as subsidies. Out of the total budget of 476 billion Br, six billion Birr will go to finance the Sustainable Development Goals (SDG). This year’s budget is 23pc higher, in Birr terms, than the just-ended fiscal year.

The coming fiscal year capital expenditure shows a 22.6pc increase from the past fiscal year, an increase of 29.6 billion Br. Recurrent spending will also see a 23pc rise, 23.8 billion Br in absolute figures. Subsidies for regional states saw a considerable increase of 25.4pc with 35.6 billion Br more allocated in the budget.

In terms of foreign currency, the budget stands at 13.3 billion dollars, slightly lower than last fiscal year's budget of 13.4 billion dollars.

The new federal budget is very expansionary, according to Alemayehu Geda  (PhD), a macroeconomist and a university professor with decades of experience, claiming that the budget did not factor in the adverse impact of the pandemic on the economy.

Alemayehu views the target for tax revenues as ambitious, predicting that domestic tax revenues collection could shrink by 18pc this coming fiscal year.

“This is due to a decline in external trade and economic activity in the country,” he said.

While the largest pie, 64pc of the budget, is covered by domestic revenues including taxes, 19.6pc of it will be covered through foreign assistance and loans. The domestic borrowing is expected to cover 78 billion Br of the budget.

Foreign aid and loans are expected to cover 9.5pc and 10.1pc of the budget, respectively, and domestic loans will finance 16.4pc of the budget.

In the first 10 months of the just ended fiscal year, the Ministry of Revenues collected 174.5 billion Br from domestic taxes out of the planned 244.8 billion Br in revenues, 71.3pc of the target.

During the session when the budget bill was legislated, Prime Minister Abiy Ahmed (PhD) said that the tax collection performance for the entire year would not exceed 200 billion Br, which is only 80pc of the targeted value.

However, Eyob Tekalign (PhD), state minister for Finance, begs to differ with Alemayehu's opinion, arguing that the tax revenue projection is attainable.

"It’s achievable, although it requires a lot of work and coordination,” he told Fortune. “We're working extensively on the administration side at the Ministry of Revenues and at Customs, both in infrastructural and customer centric projects."

The government is betting heavily on the newly instituted excise tax increase to boost tax collection as well as the Value Added Tax (VAT) Reform, which is up for revision in the coming fiscal year. Both seek to widen the base of tax collection by targeting those who normally do not pay income taxes.

“We aren’t pessimistic about the economy,” said Eyob.

But the government is not confident in corporate income taxes, estimated that it will collect 10.6 billion Br less than last fiscal year's projections.