Nation’s Budget Gets Approval Amidst Anxiety in Tax Collection Capacity

Out of the total budget, the government is planning to cover over two-thirds of it from tax revenues

With all the anxiety and reservation of the tax revenue’s ability in covering 68pc of this year’s budget, the legislators have approved a 346.9 billion Br budget for the newly started fiscal year.

Parliament has unanimously approved the budget, which is characterised to be austere as it is lower than the previous years’ when converted to dollars. The growth rate, which is 3.5pc, is also lower compared to the previous year that saw a 16.9pc increase. The nation is planning to cover over two-thirds of its budget from tax revenues.

The newly approved budget allocates 113.6 billion Br for capital expenditure, 91.6 billion Br for recurrent spending and 135.6 billion Br to subside regional states. The remaining six billion Br is allotted to finance the Sustainable Development Goals (SDG) projects. To cover these expenditures, the government anticipates that it will mobilise 235.7 billion Br from domestic tax revenues. The balance of the budget expenditures is expected to come from non-tax sources including foreign aid and loans, and domestic loans.

During a discussion on the budget held a day ahead of the approval, Abraham Tekeste (PhD), minister of Finance & Economic Cooperation was anxious to attain the targeted tax collection amount.

“If we can not address the issues with our tax collection system and capacity, we would be challenged in using the budget as per our plan,” Abraham told the 305 MPs, which attended the session that saw many deserted seats.

While defending the budget bill, Abraham has insisted that the federal government should have a strong resolve to enforce tax compliance and the tax office’s ability in gathering information and carrying out an audit.

Though the annual tax revenues collections were growing by 31pc between 2012 and 2015, the rate has drastically dwindled, by greater than half in 2016, marking 15pc. It declined to 10pc in 2017. To add insult to injury, during last fiscal year the ERCA failed to collect close to 30pc of the targeted tax proceeds. During the last 11 months of the past fiscal year that ended just last week, the Authority managed to collect 162.38 billion Br revenues, Out of the total amount, 95 billion Br of it was collected from domestic tax.

It is definite that the government would ask a supplementary budget, according to Alemayehu Geda (Prof), a macroeconomist with a broader experience of research and academics.

“As the amount would not be collected from tax,revenues, the government will ask supplementary budget, to escape a budget deficit,” he said.

The tax system of the country has major structural problems including tax evasion, tax assessment problems and a tax system that is highly affiliated with the political system, according to Alemayehu.

“Beyond that, the efficiency of the tax collector body is still in question,” Alemayehu said.

However, Tesfaye Daba-MP-OPDO sees the target achievable.

“As there are huge tax reforms underway.” he said, “the tax authority would manage to collect the due amount efficiently in the new fiscal year.”

Yet, he recommends that a lot be done in awareness creation the community, and good governance should advance the tax administration system.

“As the public servant, the business community should be loyal to the tax system of the country,” said Tesfaye.

Atlaw Alemu (PhD), a university professor at Addis Abeba University (AAU) School of Business & Economic, believes that the government has a lot of works on the ground in order to collect the stated amounts from taxes.

“Due to various reasons, the economy was not vibrant in the past year,” Atlaw said. “Therefore, it is difficult to expect tax revenues cover large portion of the budget in spite of such situations.”

Atlaw recommends the government to solve the bureaucratic bottlenecks in businesses, reform the tax administration system, and create more jobs to stimulate the economy.

While defending the budget, Prime Minister Abiy Ahmed (PhD), pledged that the government has an unwavering commitment to establishing accountable and transparent public sector.

“Ministries and other federal institutions will get into contact with the standing committee of the parliament to hold them accountable for their plans and target,” he said.


Published on Jul 07,2018 [ Vol 19 ,No 949]



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