June 22, 2016, with the officials of the federal democratic republic of ethiopia on economic developments and policies. The african setting while the african continent has immense human and natural resources, a combination of factors, including the colonial heritage, structural weaknesses of. Income specifically exempted from income tax by the law in force in ethiopia, by international treaty or by an agreement made. In the longterm, the ethiopia personal income tax rate is projected to trend around 35.
Chapter two will introduce the students to the income tax in ethiopia. The economy of ethiopia is a mixed and transition economy with a large public sector. The korean war was largely financed by higher tax rates with gdp averaging 5. The ethiopian economy continued its strong expansion in fy14 with real gdp growing by 10. Introduci1on for a number of poor african countries a central economic management problem today is how to.
For comparison purpose, we have also added the old net salary, pension and income tax caluculation methods. Introduci1on for a number of poor african countries a central economic management problem today is how to finance agricultural expenditures. Browse additional economic indicators and data sets, selected by global finance editors, to learn more about ethiopia. Overall, this is a book that must be read before anyone can claim to have an understanding of the ethiopian economy. Furthermore, the ability to generate adequate fiscal. We examine impacts on the expansion of the supply side of the economy and of potential gross domestic. Data and research on consumption tax including indirect tax topics such as value added tax vat, goods and services tax gst, consumption taxes provisions, motor vehicles, tobacco and alcohol. The impact of taxation is integrated into growth models by its impact on the individual growth variables, which are capital accumulation and investment, human. Within the last few years the government has been collecting more revenues, as a result of increased taxes.
The subtraction method computes each firms value added as sales less purchases of material inputs from other businesses. According to international monetary fund 20 over the period 19992000 201112 the average tax revenue was 4. This is slightly faster growth than on average over the past 6 months mainly due to an increase in food inflation. Other taxes include a valueadded tax and a tax on capital gains. What is the importance of tax to gdp ratio for the economy of. Ethiopia personal income tax rate 20062020 data 2021. Based on the analysis results, macek 2015 found that for stimulating economic growth in oecd countries, the economicpolitical authorities should lower corporate taxation and personal income taxes, and the loss of income tax revenues should be compensated by the growth of indirect tax revenues. However, the reform, especially the introduction of vat, involves the.
Jan 26, 2016 tax to gdp ratio indicates amount of net tax received by the govt to total income of the country. The government main focus was to ensure that all taxes are collected. While, analyzing the long run and short run relationship between government revenue growth and economic growth the study applied johansens cointegration test, var, granger causality test, and vecm. Ethiopia the second most populous country in africa is a oneparty state with a planned economy. Redistribution of income through taxation and spending in. A value added tax and factors affecting its economic impact. The impact of tax reform on private sector development acknowledgement the draft report on the impact of tax reform on private sector development was prepared by ato amin abdella based on an earlier draft written by ato beyene bekele of tademcos consulting. The major types of taxes that exist in ethiopia, their meaning, rates and conditions, as provided by the federal inland revenue authority, are presented as follows. However, the banking, telecommunication and transportation sectors of the economy are dominated by governmentowned companies. The challenges of tax collection in developing economies. Since ethiopian is one among developing countries, pattern of tax revenues and economic growth across country has become a significant concern. The production and export of cash crops such as coffee were advanced, and importsubstituting manufactures such as textiles and footwear were established. Categories of tax payers, declaration of income and assessment of taxes, tax incentives. Due to aforementioned deficiencies, ethiopia struggles with budget deficits for a long time.
Ethiopia s top individual income tax rate is 35 percent, and its top corporate tax rate remains at 30 percent. As tax is an important source of revenue for govt as well as an incentive to savers and investors in the form of exemptions, the ratio can give direc. Whether the direct or indirect tax, the tax must be charged on. Ethiopia, international studies program working paper 0838, andrew young school of policy studies alefe abeje belay 2014, system of division of revenue in ethiopia, european scientific journal d. This implies that the tax revenue of the country is at low level. The government of the republic of singapore and the government of the federal democratic republic of ethiopia. The role of tax revenue is imperative in bringing economic development, where its working or efficiency is determined by different socio economic and political factors. Here are the formulas on how to calculate personal employee income tax, pension, gross and net income in ethiopia. At the contemporary periods, ethiopiaas economic growth transformed from single to double digit. It notes that because the digital economy is increasingly becoming the economy itself, it would not be feasible to ringfence the digital economy from the rest of the economy for tax purposes. Californias tax system legislative analysts office ca. The transitional government of ethiopia issued proclamation no. In addi tion, higher income earners would pay more sales taxes as they generally purchase more goods and services.
An indirect tax is that tax which is initially paid by one individual, but the burden of which is passed over to some other individually who ultimately bear it. Economic indicators for ethiopia including actual values, historical data charts, an economic calendar, timeseries statistics, business news, long term forecasts and shortterm predictions for ethiopia economy. The report notes, however, that certain business models and key. Leaving aside this brief description of the evolution of the tax system before the 19912 reform, the subsequent taxing system in ethiopia can be divided into three broad categories. This base multiplied by the tax rate indicates the amount owed the government in value added taxes. A number of subsaharan african countries do not have tax revenue data for 2015. Salary income tax calculation in ethiopia, pension, gross. Whereas, in consequence of these developments, the existing system of income tax needs to be. Corporate businesses are required to pay 30% flat rate of business income tax. Stnicture, problems and policy haw financing government agricultural expenditure in ethiopia teshome midas i. The principal taxes currently in place are company profit tax, turn over tax valueadded tax vat, excise tax, customs duty, income tax from employment and income tax.
Ethiopia s economy experienced strong, broadbased growth averaging 9. Even more, it provides a guide to the political economy of policy and policy. This is the tax imposed on the taxable business income net profit realized from entrepreneurial activity. The study period spans economic cycles for about 66 percent of the life of. Based on information available at the time of these discussions, the staff report was completed on august 30, 2016. The studys objective was to determine the effect of value added tax on economic growth in kenya. With respect to taxes on income note this agreement was signed on 24 august 2016. Furthermore, tadele 2015 indicated that although the overall economic performance of ethiopia, measured by growth in real gdp, between 200304 201011, registered an average annual growth rate of 11.
Tra ditionally tax potential has been proxied by gross domestic product gdp of a country, hence tax effort is simply the ratio of actual tax revenue to gdp. Achievements and challenges, public policy and administration research. A wage or bank levy are commons steps the irs takes to collect taxes that have been owed for period of time. Personal income tax 500 birr x 10% tax rate 50 birr deduction 50 birr 15 birr deduction fee. Taxes include personal and corporate income taxes, value added taxes, excise taxes, and tariffs.
Structure, problems and policy issues investment promotion and incentives in ethiopia tsegaye teldu 1. Jul 15, 20 at the present time payment of taxes is obligatory in all civilized nations. For example, steve forbes vaulted briefly into the political. This paper examines how changes to the individual income tax affect longterm economic growth.
It is borne out of the governments vision to propel ethiopia into middle income country status by 2025. The general objective of this study is to examine the impacts of value added tax on revenue generation in nigeria. This entry records total taxes and other revenues received by the national government during the time period indicated, expressed as a percent of gdp. Ethiopia s real gross domestic product gdp growth decelerated to 7. The principal taxes currently in place are company profit tax, turn over taxvalueadded tax vat, excise tax, customs duty, income tax from employment and income tax from business. Value added tax vat this is a sales tax based on the increase in value or price of product at each stage in its manufacture and distribution. Ethiopia s tax revenues 20082011 as a percentage of gdp have been increasing 7. Two main questions how well do taxes and spending in south africa redistribute income between the rich and poor. However, the agreement is not yet ratified and therefore does not have the force of law.
To examine the relationship between value added tax and revenue generation in nigeria to establish the effects of value added tax on revenue generation in nigeria 1. Also, we can see that developed countries had little change in taxto gdp. Ethiopia economic analysis of governments policies. Given the large size of its economy and its low tax efficiency, nigeria tops the group with an estimated gap. In may 2015, the headline inflation continued its upwards trend, albeit on relatively low levels, and reached 9. Ethiopia federal country africa basic socio economic indicators income group lowincome local currency ethiopian birr etb territorial organisation and subnational government responsibilities subnational government finance. The spread of the digital economy poses challenges for international taxation. Recently, value added tax vat becomes a major worldwide tax instrument which enhances economic growth. Public finance and taxation in ethiopia pdf in a moment of dismissive hubris, the ethiopian tax system may be. For more than a decade before 2016, gdp grew at a rate between 8% and 11% annually one of the fastest growing states among the 188 imf member countries.
Mar 24, 2009 customs duty, tariff and taxes in ethiopia details written by administrator published on 24 march 2009 category. Concurrently, in case of the value added tax approximated by tax quota, the negative impact on economic growth was not confirmed, from which it can be concluded that tax quota, in this case as the. For unincorporated or individual businesses the business income tax ranges from 10% 35 %. Inflation has remained in single digits for the last two years. Global finance magazine ethiopia gdp and economic data. The challenges of tax collection in developing economies with special reference to india pramod k. The focus of this paper is to identify determinants of tax revenue in ethiopia by using a. Taxes and tax reform in ethiopia, 19902003 unuwider. The government of ethiopia is in the process of privatizing many of the stateowned businesses and moving toward a market economy. Under haile selassie i reigned 193074, ethiopias economy enjoyed a modicum of free enterprise. The target population for this study consisted of the quarterly reports on the state of the kenyan economy in relation to productivity. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other state.
Ethiopia car import tax importing vehicle to ethiopia. Ethiopia is one of the fastest developing countries situated in the northeastern corner of africa. The ethiopian economy is still largely on subsistence level, and in spite of some progress made, ethiopia has only taken the very first steps towards economic and social development. The achievement of economic growth is crucial for countries sustainable development. Learn more about the ethiopia economy, including the population of ethiopia, gdp, facts, trade, business, inflation and other data and analysis on its economy from the index of economic freedom. Though colm argues that each stage of taxation is interrelated to the other stages it would seem that presently in ethiopia haile selassie has, for political, administrative and economic reasons, decided upon the. Employment income tax in ethiopia introduction individuals may receive various types of income such as wages or salary from employment, rent from letting houses or buildings, interest from lendingsaving money, and profit from their trading activities or business. Productive capacity and economic growth in ethiopia. Tax reform, tax reform discourse, vat adoption, ethiopia, development introduction tax reform has been a significant part of postworld war ii development projects, where legal and economic notions or models are easily transplanted across borders to reform the tax systems of. Whereas ethiopia has always had a provision within its income tax proclamation itp requiring. Ethiopia aims to reach lowermiddleincome status by 2025. This paper investigated empirical evidence on contributions of tax revenue for economic growth of. The impact of tax reform on private sector development. The research design adopted in this study was causal study.
Nov 23, 2012 categories of taxpayers administrative convenience requires classification of taxpayers into different groups at it is not possible to extend the same treatment to all taxpayers at the same time. More fundamentally still, the centrality of taxation in the exercise of state power means that more efficient, fairer, and less corrupt tax systems can spearhead improvement in wider governance relations. According to world bank 2015 report 24% of gdp to finance investment requirement is being solicited from loans and grants. In ethiopia, the total tax revenue as percentage of gdp is very low compared to its tax capacity. Outlook the ethiopian economy has experienced impressive growth performance over the last decade with average gdp growth rate of 11 %, which is about double of the average growth for sub saharan africa. The sales tax, value added tax customs duty are the best examples of the indirect taxes. Productive capacity and economic growth in ethiopia 1 introduction ethiopia is one of the largest least developed countries ldcs in subsaharan africa, with a popula. However, the literature on tax effort has evolved particularly in the context of cross country comparisons. Country report 2017 includes ethiopia real gross domestic product growth rate, with latest forecasts and historical data, gdp per capita, gdp composition and breakdown by sector. Federal ministry of economic cooperation and development bmz. Disclaimer the organizations that is, ibrd, ifc, and miga, using their best efforts in the time available, have endeavored to provide highquality services hereunder and have relied on information provided to them by a wide range of other. Ethiopia s location gives it strategic dominance as a jumping off point in the horn of africa, close to the middle east and its markets. Taxation in ethiopia in ethiopia a company, based on its activities may be required to pat the following taxes. Publication 17, your federal income tax pdf internal revenue.
Due to this, in the case of widened neoclassical growth model of mankiw, romer and weil 1992, it is the impact of. The aim of this paper is to evaluate the impact of individual types of taxes on the economic growth by utilizing regression analysis on the oecd countries for the period of 20002011. This report sets out an analysis of these tax challenges. The structure and financing of a tax change are critical to achieving economic growth. And developing countries, in turn, collect almost half as much as transition economies. Pdf causal relationship between government revenue growth. An essay on the effects of taxation on the corporate. Income tax proclamation whereas, the declaration on economic policy of the oromia regional government inaugurates a new era in social and economic relations and institutions in this country. Taxpayers who have the obligation to maintain books of account shall have to register with the tax authority the type and quantity of vouchers they use before having such vouchers printed. The study focuses on the impact of petroleum profit tax, company income tax, personal income tax, value added tax revenue on nigerias economic growth between 1980 and 20.
Taxation is important mechanism that boosts countryas economic level. Resources were allocated among the various sectors of the economy differently in the imperial and revolutionary periods. The ethiopian tax system the ethiopian tax system also public finance revenue and spending activities. The revenue from these contributions led to unusually high tax revenues for a single year and consequently, icelands taxtogdp ratio rose from 35. As of march 2012 the national budget was fairly balanced with a slight surplus of 0. Customs under the current legal system of ethiopia, customs duty, tariff and taxes are regulated by a number of laws which include domestic laws and international bilateral treaties to which ethiopia is a part to. In addition, principle of economy also requires the tax system to concert tax efforts on those taxpayers with high revenue potential. Bordering eritrea, somalia, kenya, south sudan, and sudan, ethiopia is landlocked, and has been using neighboring djiboutis main port for the last two decades. International monetary fund december 2015 tax policy and. Recent proposals suggested that by reducing marginal tax rates, or by replacing the current federal income tax with a consumptiontype tax, the united states can experience increased work effort, saving, and investment, resulting in faster economic growth.
The staff report prepared by a staff team of the imf for the executive boards consideration on september 21, 2015, following discussions that ended on june 17, 2015, with the officials of the federal democratic republic of ethiopia on economic developments and policies. Personal income tax rate in ethiopia is expected to reach 35. Determinants of tax revenue in ethiopia johansen co. Apr 25, 2016 lets move on to the type of taxes imposed on you and amount you are required to pay. Tax reform discourse and its implication on development. The growth and transformation plan gtp, launched late 2010, is the government of ethiopia s goe response to these challenges. Wage and bank levies can cause serious financial hardship because the irs steps in and helps itself to your money without regard to your personal and family needs. Despite the fact that people need to pay taxes based on rationales of vertical and horizontal equities, it is not always the case that tax systems are comprehensible and transparent for tax payers especially for less. International monetary fund, government finance statistics yearbook and data files, and world bank and oecd gdp estimates. Effects of income tax changes on economic growth brookings. Pwc 2018 budget highlights 2 i n a bid to consolidate the ghanaian economys path to macroeconomic stability and to boost the productive sectors of the economy, the 2018 budget statement the budget of government of ghana has the theme from stabilisation to growth. The government of sudan requires taxpayers to assess tax liability, file tax returns and pay the tax liability. Ethiopia issues transfer pricing rules september 15, 2016 in brief ethiopia, one of africas fastest growing economies, issued transfer pricing rules effective october 12, 2015 through the ethiopian ministry of finance and economic development mofed.
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