The government will not charge interest or cut tax exemptions and tax holiday for investments, despite the International Monetary Fund’s (IMF) recommendation to reconsider its generous tax policies to accelerate development.
Arkebe Oqubay (PhD), Special Advisor to the Prime Minister on the Minister portfolio, said that the government would not implement a short term cut on tax incentives in the near future.
In its latest report, IMF stated that in terms of tax revenue collection, Ethiopia faces the typical challenges of a developing country. “These include a low tax-to-GDP ratio, heavy reliance on trade taxes as a source of revenue generation, and generous tax exemptions and expenditures,” the report stated.
IMF recognized that stronger efforts in tax administration allowed Ethiopia to catch up with peer countries in the region like Tanzania and Uganda, nevertheless, it still falls behind its own targets, and average performances in Sub Saharan Africa.
Greater efforts are needed through tax design and administrative measures to support inclusive growth and create sufficient fiscal space for scaling up the most needed social spending, according to the IMF.
“The main consideration should be given, in this context, to reduction of excessive tax exemptions and tax holidays, as well as to policies promoting private sector development, which would facilitate broadening of the tax base,” the report stated.
Arkebe told Capital that the government will continue to provide attractive policies to expand the investment flow.
“The government has identified that in the manufacturing sector, the main issue is expanding the industry zone. That shall minimize investment costs and other address other concerns such as effects on climate,” he said.
The government will not reduce the tax incentives and duty free schemes, such as for the export sector and free for importing machinery.
“Incentives are considered as additional support for investors,” he explained. “We do not have any new plan to evaluate the tax incentives soon.”
The country government has up to ten years’ tax holiday for foreign direct investment. In addition to tax incentives, the government is establishing industry zones to attract more FDI for selected sectors.