Business owners in Mercato, the largest open market, were left stunned by a sudden gridlock following a consequential decision by authorities to tighten tax administration in the economic hub. The move has exacerbated an already fragile business climate in the capital. Last week, many closed their shops for a few days in protest. Some, fearing potential confrontations with authorities, discreetly moved their merchandise under the cover of night.
A 38-year-old retailer sat in quiet unease in front of his shop around the Military Tera area, a hub for selling tailored garments. He expressed a deep sense of uncertainty casting a wary eye over his modest inventory priced between 100 Br to 300 Br.
"I'm hesitant to engage in any sales," he said.
The retailer claims that authorities have threatened his business, accusing him of non-compliance. His distress intensified after receiving a letter from Derara Chala, head of law enforcement at a district's tax bureau. The letter warned of a 100,000 Br fine and legal action for selling goods without issuing receipts, confirmed through investigations. He lamented the recent enforcement of strict receipt requirements, which he says have become a source of harassment. Officials, he claims, demand receipts even for decade-old inventory.
"They didn’t even treat us like human beings," he said, referring to his interactions with tax authorities.
In response to the demands, the retailer joined a wave of merchants who closed their shops in protest, hoping to signal their frustration and stress to the authorities. The issue, many traders argue, stems from systemic non-compliance within the supply chain, where wholesalers and importers usually fail to issue receipts.
Mercato has been reeling from a series of setbacks, including two major fires in as many months. Shops in prominent areas like Shema Tera and Sidamo Tera were eerily quiet following the crackdown, with closed shops and idle porters reflecting the uncertainty hanging over the area.
The Addis Ketema District Revenue Bureau penalised 126 traders for operating without receipts during the crackdown.
Party Nigussie, a deputy director at a Mercato tax bureau, defended the enforcement measures. He argued that the initiative to formalise sales and bring traders into the tax system had been preceded by months of discussions with importers, manufacturers, and retailers.
"It didn’t happen overnight; enough time was given," he told Fortune.
Overseeing 13,000 traders, 19 manufacturers, and 531 importers, his bureau plans to double tax revenues this year, targeting 2.3 billion Br. He confirmed widespread business closures, noting that over 10 out of 34 commercial buildings in his jurisdiction had completely closed shops for two days.
"It seems they wanted to continue with their illegal activities," he said.
Traders, however, claim the enforcement was abrupt and poorly communicated.
Authorities categorize their actions as part of a broader plan to reform trading practices in Mercato. Mayor Adanech Abebie noted the market’s economic value while acknowledging its role in promoting tax evasion. Speaking before the City Council at the Adwa Victory Memorial Museum, she described the problems in Mercato as deeply entrenched.
"The issues are more complex than they appear," she said.
Adanech accentuated the broader societal benefits of improved tax collection, including investments in infrastructure and housing. She reiterated that taxes are meant to benefit society, underlining that stricter enforcement would strengthen the system and expand the tax base.
"There will be no mercy for those who break the law," she warned.
Retailers argue that their non-compliance stems from the reluctance of manufacturers and wholesalers to issue receipts. Some manufacturers agree while others fiercely contest the practice. A finance manager of a foam manufacturer operating five outlets, supports receipt enforcement, citing unfair competition from businesses that bypass regulations. He criticised the burdensome tax environment and accused authorities of creating difficulties for compliant taxpayers while letting the others operate unchecked.
One top management of a prominent sanitary products manufacturer notes that no supply has been sold to retailers without a receipt, and manufacturers have been feeling the weight of unsold supplies.
Officials at the Addis Abeba Revenue Bureau outlined sweeping plans to tackle under-invoicing and contraband trading. Sewnet Ayalew, head of communications, noted that while receipt requirements have existed for two decades, lax enforcement has allowed such malpractices to flourish.
"We are simply enforcing the existing law," he said.
Establishing an efficient system that focuses on the full supply chain is raised as a point by economists.
Tewodros Mekonnen (PhD), a macro-economist, advocates for a more inclusive tax system to ensure transparency and fairness. He argues for a progressive tax system and addressing tax evasion at the source, by ensuring compliance among importers and manufacturers before focusing on retailers.
“While under-invoicing has long persisted, over-invoicing is becoming an emerging concern, facilitating capital flight,” he told Fortune.
He believes that robust penalty systems should be kept in place for non-compliance and evasion, similar to the practices in other countries. He also warned authorities to consider the cost-benefit analysis of enforcement, as the cost of investigation may outweigh the potential tax revenue.
The city aims to collect 230 billion Br in domestic taxes this fiscal year, with 47 billion Br raised in the past three months. Officials anticipate substantial contributions from Mercato, which has historically been poorly regulated.
The rise in over- and under-invoicing is attributed to a relaxation of customs regulations over the past five years, according to Tewodros Kebede, a senior tax assessor with over two decades of experience at Dragon Logistics Plc. He contends that the discontinuation of a valuation company's role, coupled with the subsequent assumption of this responsibility by customs authorities, has led to a less rigorous tax assessment process.
"The absence of robust data sharing between customs authorities and banks is a major factor contributing to oversight in import valuations," he said.
Ethiopian Customs Commission officials concur. A senior official in the IT department disclosed that they are developing systems to integrate services between banks, customs bureaus and the central bank.
Ethiopia’s tax-to-GDP ratio has plummeted from 13.2pc to less than seven percent over the past decade, accentuating the need for systemic reforms. The government plans to boost revenue collection to 1.5 trillion Br in the fiscal year, with the tax-to-GDP ratio targeted to reach 10.2pc by 2028.
A recent IMF report noted Ethiopia’s urgent need to strengthen its tax system to fund public services and infrastructure adequately. This year’s tax collection target has risen to 851 billion Br, with 487.22 billion Br expected from domestic sources, including 170 billion Br from VAT collections.
To achieve this goal, authorities say they are implementing a series of tax reforms and have established the National Medium-term Revenue Strategy (NMTRS), which incorporates key program-supported revenue mobilisation reforms, including VAT, excise, corporate taxes, presumptive income taxes, and property taxes.
They are introducing a new QR code system on VAT receipts with hopes of combating tax evasion and market distortions caused by illicit receipts. Yared Fekade, director of the tax declaration monitoring directorate, noted that selected printing companies will be the sole providers of QR-coded receipts. He places the initiative as part of the efforts to curb illicit activities throughout the supply chain, from importers to traders.
Tax experts stress that effective administration requires operational efficiency, consistent enforcement, and disciplined oversight. Tadesse Lencho (PhD), a tax expert, pointed out that Mercato has long been a symbol of tax non-compliance.
"Big Brother is watching now," he said, warning that inconsistent enforcement nurtures tax evasion and unfair competition.
He recommends training tax administrators, improving operational capacity, and combating corruption, calling for understanding taxpayers’ motivations while implementing strict enforcement measures.
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