As Ethiopia works to rebuild from recent conflicts, health crises, and devastating economic impacts, establishing the conditions for strong, sustainable growth has never been more important. Attracting domestic and foreign investment will be critical to generating jobs, stimulating business activity, and lifting its citizens out of poverty. However, a burdensome, unpredictable tax system threatens to seriously undermine these vital objectives if left unaddressed.
Recent reports exposing widespread deficiencies have shone a light on long-standing deficiencies discouraging private sector participation. While the European Chamber of Commerce highlighted concerns among its members, interviews with a wide range of stakeholders, including Ethiopian businesses, reveal issues of unpredictability, lack of transparency, and onerous processes plague the system more broadly. Unclear directives subject to varied interpretation by revenue agencies breed uncertainty, as does the ability to conduct audits reaching back several years and change tax rules without meaningful consultation.
Such unpredictability prevents sound financial planning and informed investment decisions. Not knowing potential liabilities years down the road or if goalposts may abruptly shift discourages long-term thinking and commitment of capital. Rather than foster the stable environment conducive to job creation and economic dynamism, Ethiopia's current approach breeds only frustration and risk aversion.
The impact of an unpredictable tax regime cannot be overstated. From large enterprises to small and medium businesses, lacking a reliable framework in which to operate undermines growth across sectors. Complex, obscure provisions discourage voluntary compliance and incentivize informal markets. Arbitrary audits and disputes damage relationships between taxpayers and authorities, further corroding trust in the system's integrity. Internationally, uncertainty raises perception of risk, impacting foreign investment.
Reforming the appeals process represents low-hanging fruit. Requiring half of disputed amounts merely for adjudication unfairly tilts the scales against taxpayers' rights. A rebalanced, more accessible system would boost confidence in due process and encourage resolution of good-faith disagreements. However, broader changes are urgently needed through an inclusive consultation process.
Crafting simplistic, predictable rules comprehensible to all, with meaningful stakeholder input could help address lack of clarity. Establishing multi-year audit cycles with prior notification and eliminating retroactive changes provides stability. Investing in well-trained staff and modernizing outdated regulations and technologies would enhance efficiency and minimize discretionary practices. Regular reporting and taxpayer education can also lift transparency.
The government holds the responsibility to establish an equitable framework that treats contributors, both domestic and foreign, as partners in Ethiopia's development rather than adversaries. Only with a concerted effort to reassure investors through predictable, fair tax administration will business confidence fully rebound and private investment flows accelerate, generating sustainable income growth.
