The Ministry of Finance and Economy has drafted a property tax proposal, which is expected to be brought to the Council of Ministers by the end of this fiscal year, in order to collect more revenue from business hub areas.
Sources told Capital that a property tax between 0.5 percent and 2 percent will be levied on the businesses. For a long time, property income taxation has been seen as neglected by Ethiopia’s tax authority.
According sources close to the issue if the draft is endorsed by Parliament the new property tax law will enhance local revenue mobilization by increasing the local tax base and addressing tax administration weaknesses identified at the local level and in the long run the tax will be expected to cover at least 60 percent of the municipality budget.
“Business hub areas benefit from the better infrastructure that surrounds their business. If you go to Bole, the roads are better, the sewerage system is better. However, the building owners pay nothing to build the infrastructure. Receiving money from the business shops will help renovate, maintain and construct roads, street lights and drainage systems” a source told Capital.
The property tax money will be administered by urban cities.
“The Property tax will not be based on assumptions, mere conclusion of property value by individuals, old records and non-professional opinions among other means but it will be based on property values obtained from registered estate surveyors and certificates of valuation”, the source added.
The latest IMF report stated that Ethiopia has made progress mobilizing domestic revenue since the mid-1990s, but still lags countries in the region and other low income countries (LICs). “The tax-to-GDP ratio rose from 8.6 percent in 2008/09 to 12.7 percent in 2014/15, but it has declined since then to 11.1 percent in 2017/18,” it said. In the past budget year, the government wanted to collect 200 billion birr, but the actual performance was actually ¼ of the target, which is a significant reduction compared with the recent trend in the tax collation and target achievement ratio.
Since the beginning of the first Growth and Transformation Plan (GTP) the government has expressed its eagerness to expand the revenue from tax in line with the rate of the GDP. It has also show an improvement in the first GTP even though the rate is under the projection. At the heyday of tax collection in 2014/15, which was the end of GTP I, the revenue authority body which at the time was the Ethiopian Revenue and Customs Authority, collected 12.7 percent of the GDP. This is lower than peer economies and countries in the east Africa region.