Small businesses in Addis Ababa say disputed tax assessments and concerns over compulsory value-added tax (VAT) registration are forcing some traders to close their shops, while the city’s Revenues Bureau maintains that its assessments follow established procedures and can be appealed.
Business owners interviewed by Capital said estimated sales figures often exceed their actual receipts, adding to financial pressures from rising operating costs, commercial rents and narrow profit margins.
Three former business owners—a children’s clothing retailer and two construction materials dealers—said they had closed their businesses after being unable to meet newly assessed tax obligations. Speaking on condition of anonymity, they said they continued to face lease liabilities for their vacated premises.
The Addis Ababa City Administration Revenues Bureau rejected claims that businesses were being indiscriminately required to register for VAT. It said registration decisions were based on sales assessments conducted by committees, with opportunities for taxpayers to challenge the findings.
The concerns are particularly pronounced among small businesses selling mobile phone accessories, stationery, construction materials, clothing and general consumer goods.
Traders argue that assessors apply sales estimates that do not adequately reflect differences in location, customer traffic, inventory turnover and operating costs.
Biniyam Ashenafi, who operates a small retail and repair stall in the Akaki market, said assessments should distinguish between businesses selling expensive electronic devices and those offering low-cost accessories or repair services.
“Assuming that small mobile phone repair shops and retailers selling chargers, earphones, and phone covers earn a net profit of two million Birr per year is completely detached from reality,” Biniyam told Capital. “There is a massive distinction between selling expensive electronic devices and running a small shop offering low-cost accessories or basic repair services.”
He said earnings fluctuate depending on demand and operating expenses. Applying similar assessment methods to small accessory shops and larger electronics businesses, he argued, could create tax obligations that micro-enterprises cannot afford.
Meaza Alemu, who owns a stationery business, also called for a review of the assumptions used to estimate taxable income.
“The study used to establish income estimates must differentiate between large retailers operating in central commercial districts and small businesses operating in lower-traffic neighborhood areas,” she said.
Meaza said the revenue figures assigned to her business did not correspond with the receipts recorded in her accounts.
Other traders interviewed by Capital said uncertainty over tax assessments had influenced decisions not to renew shop leases. Some said they were moving to online and social media sales to reduce the costs associated with physical premises.
The interviews point to individual business closures and changes in trading practices, although they do not establish the citywide scale of either trend.
Much of the concern centres on assessments used to determine whether businesses must register for VAT.
Traders say inflated daily sales estimates could bring them into the VAT system even when their actual turnover falls below the applicable threshold. Some said uncertainty over registration requirements and appeal procedures had prompted them to suspend operations.
Sewnet Ayele, communications director at the Revenues Bureau, told Capital that the registration exercise targets selected sectors and relies on committee-led assessments.
He said approximately 13 commercial sectors had been identified for closer assessment, including consumer electronics, cement, building materials and vehicle spare parts.
Sewnet emphasised that VAT registration is determined by turnover, rather than profit.
“In this context, VAT is not linked to profit. The primary metric is sales volume,” he said.
According to Sewnet, the criteria being applied cover businesses assessed as generating daily sales of 7,000 birr or more, corresponding to annual turnover of approximately two million birr or above.
He said an appliance retailer selling televisions and refrigerators could record substantial gross sales even when the profit margin on each item was relatively small.
The distinction addresses a central point of disagreement: traders are describing pressure on their earnings, while the bureau says its VAT registration assessments concern the value of sales.
According to the bureau, assessment teams inspect individual shops, examine available inventory, consider local market conditions and compare businesses with similar enterprises before estimating daily sales.
Sewnet said taxpayers who disagree with an assessment can submit a formal appeal to their respective sub-city administrations.
A second team then revisits the premises, reviews inventory and reassesses market conditions before a final decision is made, he said.
“Traders are provided the opportunity to contest the assessment before any VAT registration certificate is formally issued,” Sewnet said.
He maintained that the exercise was intended to promote fair competition and consistent treatment of businesses, rather than force small enterprises out of the market.
“The goal is to prevent unfair competition, ensuring that businesses operating in the same sector and at similar operational levels bear equivalent tax obligations,” he said. “The administration’s policy is not designed to eliminate small businesses, but to ensure equity while holding large taxpayers to their legal obligations.”
The bureau is also introducing digital tax administration services. Sewnet said taxpayers could declare and pay taxes electronically, reducing the need for office visits, although some physical documentation and receipt collection remained necessary.
A bureau document issued in September 2026 outlines special declaration arrangements for selected Category A and Category B taxpayers who have struggled to prepare complete financial statements and maintain the required accounting records.
The document provides an alternative declaration pathway for the reporting period it covers, subject to taxpayers signing a commitment to establish the required audited accounting records in the following fiscal year.
It also sets out adjusted calculation methods for certain businesses, including transport operators and government contractors.
Some Category B transport businesses are permitted to calculate their obligations using adjustment factors applied to previously declared figures. Transitional arrangements are also outlined for taxpayers moving from Category C to Category B.
The document cites income tax and tax administration proclamations, amendments and related regulations as the legal basis for the measures.
Revenue officials cautioned, however, that the arrangements did not exempt businesses from compliance obligations. The bureau warned that deliberate underreporting or tax evasion could result in administrative penalties and criminal proceedings. According to the bureau, penalties for certain violations can reach 200 per cent of the tax liability.
For traders challenging their assessments, the immediate concern remains whether the review process will produce figures that reflect their actual business activity. The bureau, meanwhile, maintains that individual inspections and appeals provide a mechanism for correcting disputed estimates.
