Soaring Taxes Fail to Plug Holes as Audit Reveals Enduring Waste

Jun 28 , 2025.

Meseret Damtie, the assertive auditor general, has never been shy about naming names, and with a reputation for her clear voice and sharper pencil. Last week, she published her latest verdict on the federal government’s finances, covering 115 of the 182 institutions, which secured clean audit reports this year, up from 73 in 2014.

However, beneath the tidier surface, Meseret still found grime. A stubborn 85.8pc of the irregularities flagged in earlier audits, worth 17.6 billion Br, remain unresolved. The pile of errors reveals how slowly the machinery of the state addresses its own leaks.

Her team combed through the books of 169 agencies and 51 branch offices while compiling the 2024/25 review of the 1.9 trillion Br budget. Customs duties unpaid to the treasury add up to 2.39 billion Br; income-tax arrears come to another 1.23 billion Br. Money that ought to have built schools and clinics instead gathers dust in private pockets.

The losses expose the federal government’s bigger problem. It tries to fund Scandinavian-sized ambitions with African-style tax collection.

A five-year dataset beginning in 2022 lays bare the mismatch. In 2022/23, the federal government ran a deficit of 219.47 billion Br, equal to 39.1pc of total spending. In the budget bill before Parliament, the hole would widen to 817.19 billion Br, or 42.4pc. In between, shortfalls even topped the halfway mark.

Borrowing has papered over the gap, but such an appetite for debt has proven to be difficult to satisfy. A bailout deal with the International Monetary Fund (IMF) has tightened the pipeline for Ahmed Shedie, minister of Finance, to rely on Mamo Mehiretu, governor of the Central Bank, for domestic borrowing to cover the fiscal deficit.

Under pressure from lenders and the dictates of arithmetic, Ahmed now hopes to cover nearly four-fifths of the budget for the next fiscal year with taxes. The formal sector is expected to pick up the tab. Payroll workers, corporate entities, and consumers already battered by inflation will be burdened with handing over a further 1.5 trillion Br, a record haul, revised upward after collections exceeded forecasts.

They may wonder what they receive in return.

Finance Minister Ahmed and his deputies and budget pundits on King George VI St. argue the shift is worthwhile for it spares the printing presses that Governor Mamo could order, whose past generosity stoked inflation. External lenders, especially the IMF, cheer the new orthodoxy. Less money creation means slower price growth.

However, the cure has downsides. Instead of hidden inflation taxes everyone pays, deductions fall on firms and employees whose wages have not kept pace with living costs.

The mismatch between rising contributions and modest returns feeds public discontent. Sceptics could have a point arguing that while formal businesses and salaried citizens shoulder more of the bill, they do not see comparable gains in public goods or price stability. That disconnect, the Auditor General observes, erodes trust and weakens the economy’s ability to cope with shocks.

Much of the bounty never reaches public services. A supplementary appropriation steered 137 billion Br into debt servicing and 52 billion Br into recurrent costs, such as pay rises for civil servants. Motorists, farmers and low-income families see fewer benefits.

When Brent crude vaulted above 70 dollars a barrel because of Middle Eastern tensions, the government considered scrapping fuel subsidies that cushioned transport and food prices. Fertiliser support, vital to the two-thirds of Ethiopians who farm, also stands in the firing line. Abolishing aid at such a moment could make the already unbearable cost of living even heavier, shrinking purchasing power and shaking the economy.

Critics who dismiss subsidies as waste could have missed the point. Policymakers’ failure lies less in handing out help than in handing it to the wrong people. With better data, digital payments, and clear rules, the state could target support precisely and cheaply. That, Meseret hinted, is what sound auditing should enable.

Policymakers love to cite that Ethiopia has one of Africa’s lowest tax-to-GDP ratios. Formal firms and salary earners are easy prey; subsistence farmers and the sprawling informal economy rarely receive a visit from the collector. State-owned enterprises, which dominate telecoms, power, finance, and logistics, pay meagre dividends while accumulating chunky debts at home and abroad.

Still, the ledgers show what can be done.

Between 2022/23 and 2024/25, income-tax revenue more than tripled, from 95.2 billion to 310.5 billion Birr, while withholding tax quadrupled from 32 billion to 120 billion Br. The value-added tax (VAT) has soared from 85 billion Br to 280 billion Br and is now the largest single source of revenue for the state.

Corporate tax growth lagged, climbing from 55 billion Br to 195 billion Br, perhaps a sign that many companies remain out of business. Non-tax income limped from 45.5 billion Br to 100 billion Br. A murky category labelled “other revenues” jumped from 30 billion Br to 105 billion Br, a rise that alarms the Auditor General as much as it puzzles her.

Such patterns store up trouble. VAT and payroll levies track the economic cycle; in a downturn, they will sag. Weak corporate receipts hinted at an enterprise sector too stunted to share the load. Granted, there could also be widespread evasion. Dependence on loosely defined “other revenues” could hide fresh impropriety.

Recent reallocations have fattened payrolls while starving productive subsidies.

The political economy is delicate. Faced with donor pressure and domestic frustration, ministers attempt to appear prudent by harvesting easy taxes, paying creditors, and increasing bureaucrats' salaries. But citizens endure the squeeze twice, once in payroll deductions and again at the market stall where prices keep climbing.

Trust erodes when sacrifices buy little relief.

More imaginative fixes can be on the shelf.

Plugging leaks and thrift could yield safer gains than squeezing the already compliant of the waged and the corporate.

Simple efficiency targets could have trimmed 192.77 billion Br from the current budget bills, approximately a quarter of its proposed deficit, without requiring new loans or taxes. Tighter procurement, culling redundant posts, and tracking the cost and progress of capital projects would do the trick.

Property-value levies, environmental charges, and property taxes would broaden the base. Dividends from better-managed SOEs and realistic fees for licences and regulation would supplement them. Digital tax filing could limit both error and bribery. Real-time auditing, using technology that already exists, would detect mischief before it escalates.

Meseret’s audit crusade should be far from over. By documenting in black and white the sums lost, wasted, or still unaccounted for, she exposes the rift between the soaring budget plans and their actual cash realities. Whether officials close that rift, or merely shift the burden again, will, in the long run, measure the value of her courage.

PUBLISHED ON Jun 28,2025 [ VOL 26 , NO 1313]