Funding Development: Ethiopia Tries to Strengthen its Tax System, 2007-2018

Full Publication 
PDF icon Download PDF (328.9 KB)
Plain text icon Download TXT (143.36 KB)
Terms of Use
Abstract 

In its 2006 national vision to end poverty, Ethiopia set its sights on becoming a middle-income country by 2025. It was a hugely ambitious goal for a country that, at the time, was one of the poorest in the world. To support development objectives put on hold during a decade of political turbulence, including a costly border war with Eritrea that drained public coffers, the Ethiopian government sought to expand its resources by significantly boosting tax revenues. The new plan called for a sharp increase in the ratio of tax revenue to the size of the economy—and within four years. The government merged its separate customs and domestic tax offices into a single entity and restructured the new agency’s operations along functional lines, increased salaries, adopted stringent anticorruption rules, implemented a modern information technology system, and launched public awareness campaigns. It was important that the new revenue authority worked to improve its coordination with the tax offices of subnational governments, which operated with substantial independence under the country’s federal system. Although unproven charges of corruption against the Ethiopian Revenues and Customs Authority’s long-serving director general in 2013 stalled progress, a new round of IT and legal reforms in 2016 helped increase tax collection significantly: to US$7.8 billion in 2017 from US$1.3 billion in 2006 (measured in constant 2010 US dollars). Nonetheless, revenue gains continued to lag behind economic growth. In 2018, under a new prime minister, the government began to take further steps to strengthen tax collection.

Leon Schreiber drafted this case study based on interviews conducted in Addis Ababa, Ethiopia, in October 2018. Case published December 2018.

 

Keywords 
domestic revenue mobilization
tax administration
tax policy
tax reform
fiscal federalism
decentralization
corruption
Focus Area(s): 
Anti-Corruption
Centers of Government
Civil Service
Decentralization
Financial Management
Critical Tasks: 
Auditing
Computerization of records
Corruption in the Civil Service
Enforcement
Establishing independence
Extending services to insecure or remote areas
Independent agencies
One-stop shops
Organization and staffing
Revenue collection
Core Challenge: 
Capacity (capability traps)
Contracting out (creating semi-autonomous agencies)
Coordination
Credibility (trust)
Devolution
Dispute resolution (compliance)
Institutional traps (spoilers)
Transparency
Country of Reform: 
Ethiopia
Type: 
Case Studies
Author: 
Leon Schreiber