TAXES: A SMALL PIE CAN ONLY GIVE SO MUCH (LESSON IX)

Jan 5 , 2020.

Ethiopia’s policymakers, international financial institutions and the public agree that it is far better to mobilise one's resources than borrow money from international creditors and development partners. The government has tried to aggressively collect taxes from businesses and individuals over the decade. It even played the love-of-country card.

The results have been less than impressive. The tax-to-GDP ratio stayed well below the 15pc mark all throughout the decade. The government instead supplemented its coffers through loans, grants, services and fees and revenues from state-owned enterprises.

It was evident why this was the case. There was never much to tax to begin with. The private sector was too small. Businesses were never given enough chance to reinvest and grow themselves before the state started to make money from them, while the business environment was hostile to them. But with recent economic reforms by the administration of Prime Minister Abiy Ahmed (PhD), his administration seems to have at last gotten the memo that it is much more advantageous to take a small piece from a large pie than the other way around.

PUBLISHED ON Jan 05,2020 [ VOL 20 , NO 1028]