-- R E ST R ! C T ,DFILE COPY Repqrt No. AF-60<r

This report was prepared for- use within the Bank and its affiliated organizations.They do not accept responsibility for its accuracy or completeness. The report maynot be published nor may it be quoted as representing their views,

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

T HE EC ONOMY OF E`T I`fJTnVT

(in five volumes)

VOLUME IV

T4A. DCrT TCYV 17'OP Th1VELOCPM,ENT.`'

August 31, 1967

Africa Department

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CURRENCY EQUIVALENTS

Unit Ethiopian dollar (Eth$)US$1.00 = Eth$2.50Eth$1.. - US$0. 40

METRIC SYSTEM

1 meter (m) = 39. 37 inches1 kilomseter 1(k,|s m I.2~ie1 hectare (ha) = 2.471 acres1 square kilometer = U. 386 square miles

TIME

The Ethiopian calendar year (EC) runs from September 11 toSeptember 10. Moreover, there is a difference of about 7-3/4 years

between the Gregorian and the Ethiopian era. For instance, 1959 ECruns from September 11, 1966 to September 10, 1967. Most of theofficial Ethiopian statistics on national accounts, production, andforeign trade are converted to the Gregorian calendar. Throughoutthe report the Gregorian calendar is used.

The Ethiopian budget year begins on July 8. For example, Ethiopianbudget year 1959 runs from July 8, 1966 to July 7, 1967. In the reportthis year is referred to as budget year 1966/67.

Note

This report is based on the findings of a mission in November-December 1966 to Ethiopia composed of Messrs. David Kochav (Chiefof Mission - IBRD), Dagfin Juel (IBRD), Joergen R. Lotz (IMF),Willem Maane (IBRD); Sei-Young Park (IBRD). Stuart M. Tavlor (FAO)Annibal Villela (IBRD), and T. Elwyn Williams (Grassland ResearchVnotitutme hT.K h )

Vnlum iIni V has Qbeen nprepa redt by Mr aJ.-R-T.%t Lotz (TYR),

TABLE OF CONTENTS

Page No.

IA INTRODUCTION 1

II. PAST TRENDS IN ETHIOPIAN TAXATION 2

III. DESCRIPTION OF EXISTING TAXES IN ETHIOPIA 7

(a) Income tax 7(b) Imnort duties 10(c) Export taxes 12(d ~ Land tanxat-ion 14(e) Transaction taxes 16

(g) Stamp duties 17(h) Trobacco 17(i) Salt 18(j) Tax incentives for investm.ent 19

!V . R TPBrTTECIS FO T1% X T TrY 21

V. SUGGESTIONS FOR TAX POLICY 24

(a) Income tax 24(b) Gift and inheritance taxes 25

(c mport- dutis2(d) Export taxes 26(e)l TanA taxatiion 2-7(f) Indirect domestic taxes 27(g) The ---cc ------ o I28(h) Tax incentives for investment 28(i r).cS n1. unlo 28 ii Ln

ANNEX Iricome 'Tax ARates 30

AiNNE D EthLop,U a Iax St-ructure 1949J/0-196,/66 34

ANNEX C Actual Current Budgetary Revenues 1960/61-1965/66

CHAPTER I

INTRODUCTION

1. The budget of the Imperial Government covers the activities ofthe central government and provinces and a larger part of the activitiesof the sub-provinces, including taxes on land earmarked for educa-tion and health. Towns and villages collect some small revenue forcommunal purposes. The chartered municipalities have the right to retainthe land taxes collected in the municipality, and also collect taxes onrents, automobiles, and a host of different licenses. Taxes collected inmoney by these local authorities and not reflected in the Imperial Govern-ment budget amount to only 2-4 per cent of total budgetary tax revenue.

2. The following discussion is limited to taxes collected in moneyin the monetized sector of the economy (although the incidence of thesetaxes might fall in part on the nonmonetized sector). It should be keptin mind, however, that the conclusions drawn will have a similarly limitedvalidity.

3. An important question arises of whether these taxes fully reflectthe level of unilateral compulsory levies naid by the citizens. The natuireof the landlord/tenant relationship is such that the tenant often receivesthe traditional government services from the landlord, and in some regionshe might be only dimly aware of the existence of a central government.Also, the Drovincial governors can direct the farmers to do work, for example,on road building. Finally, the growing realization of the inadequacy ofgovernment services has stimulanted a grassroots movement to collect volun-tary contributions for local purposes, especially for school construction.When these 1payments are really voluntary they are not comparable to taxes,but the distinction between voluntary and compuLsory payments is oftendifficult t.', make=

CHAPTER II

PAST TR^1NDS IN ETHTOPLAN TAVATION

4. Tax revenue has, since 1949/50,±/contributed about 88 per cent ofit-otal budgetary current revenue. Itl h-as grown from. Eth$56 r,,llo in 15d49/5~ .-~J.L~LLL £CV~LIU~. .LL LL~~ 6IAWLI LLULIL L~LLL9.JV 1LI.L.L.LLULL LL1 £~-t.;' JV

to Eth$289 million in 1965/66, or at an annual rate of more than 10 per cent(di-:sregarding -le effects on the inclusion of Eritrea in 193t4) tflhs'%~L . LLI iJL ~OL LI~ jI L LbUI UL I~ LLL L £1 .uj/ rj'+j VI.1 LUlS-

increase, 60 per cent was in indirect taxes on goods exported or imported,22 per cent in indirect taxes on Uomestic goods, 14 per cent from incometaxes and 4 per cent from land taxes. Table 1 shows that the breakdown ofthe iLLncase in revenue differed greatly in the second half or tne sixteenyear period compared to the first. The second half had a much higher in-

_. - 1 .. i . I I. 1 . 1crease in moder' taxes on income ana domestic proaucts tnan naa tne firsthalf. In absolute terms, all singular taxes have increased during the period.

Table 1. Increase in Tax Revenues

Total AnnualIncrease Rate of Percentage Composition of the Increase

Fiscal in Period Increase Indirect, Ir.direct Land IncomeYears Eth$ milliins Per Cent Foreigni Do.aesticic Taxes Taxes

1949/50-1957/58 69.5 11.9 76 15 3 6

1957/58-1965/66 161.7 11.1 53 24 5 18

1949/50-1965/66 231.2 11.4 60 22 4 14

Source: Calculated on information from the Ministry of Finance, seeAnnex B.

One reason for the greater increase in revenue from modern taxes on thedomestic sector is the low initial level of taxation.

1/ The fiscal year in Ethiopia begins July 8.2/ Export tax, import duty, transaction taxes and excises on imports and

exnorts=

3 Sales taxes and excises on domestic goods.

5. It is difficult to measure the "tax effort'" in a couintry, but it:seems clear that, considering only money payments, the level of taxation inEthiopia has been low compared with that in other countries. The simpleratio of taxes to GNP is 8 per cent in Etlhiopia but disregards imnortantfactors. First, it can be argued that a country with a low per capita in-come should not be exnected to tax as high a proportion of income as acountry with a high per capita income, because of a lower margin of surplusafter satisfying basic needs Also, a high per capita incorme is usuallVan indication of a higher level of development with respect to literacy,monetization; and CommUnicatnins, all of which make tax collection easierSecondly, a high degree of openness (measured as per cent of exportsplus imjports to G-NP) would indicate a greater ability to collect taxesbecause import and export duties are usually easier to administer thanother taxes. Based on a regression equation calculated for 24 developingcountriesll in Africa, As a and the Middle East, as a measure of the

"average" tax collection- for countries with different per capita Lincores

and different degrees of openness, it is possible to determine better howVw1-iop`a's lax effort compares with wvhat canL be expected 'or its per capit-a~ULL LFL L'- ~LLr I U ~ L~ LL LLd CLVeApLU itincome and openness. In 1965, Ethiopia collected about 35 per cent lessin taxes tllan t'ne amount that coulu be expected in accoruance with theexperience of this group. Because of the levies in kind and services paidin the agricuLtural section, the burden on tne Ethiopian citizens might behigher than these figures indicate. There is no way, however, to assessthe importance of these factors.

6. Since 1949, imports into Ethiopia have grown at an annual rateof a little more than 11 per cent. Although national income calculationsare not available for years prior to 1961, imports have clearly increasedfaster than the probable increase in aggregate income. Also in the futurethe export sector of unprocessed agricultural products will expand faster thanthe sectors producing for domestic demands. This must be kept in mind inconsidering the past a'nd -The future development of the tax structure.

7. When Ethiopia was liberated in 1941, the new government had nodomestic revenues, and a tax system had to be built up. During this processthe Ethiopian tax structure followed the traditional pattern in developin)Ycountries compressed in a short span of years with fast growing revenue.-

1/ The eauation is (T = tax revenue, Y = GNP, F = exports plus imports, andP = population). T/Y = 0.09807 + 0.001405 Y/P + 0.07759 F/Y. For 1965,YIP was US$61 (official estimate) and FlY was 19.2. This indicates an"average" tax ratio T/Y of 12.2 compared to the actual tax ratio of 8 percent or 35 ner cent below¢ average.

2/ See Joergen Lotz and Elliott Morss: "Measuring Tax Effort in Develop-incg Countries," IMF StCaf-f Papers LS f tor ULetodology.

3/ See Harley H. Hinrichs: A General Theory of Tax Structure Change DuringEconomic Development, Law School of Harvard University, Cambridge,Massachusetts, 1966.

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Figure I illustrates the tax structure change since 1949/50. Indirect taxeslevied on imports and exports yielded in 1949/50 about 60 per cent of alltax revenue. This increased to 70 per cent in 1953/54, but from 1957/58,taxes levied on domestic goods for domestic use and on income began to gainimportance and by 1965/66 only 60 per cent was from foreign indirect taxes.This trend was mainly the result of the growing need for revenue whichrequired the development of new tax sources, and was made possible by theemergence of a domestic tax base.

8. Any analysis of tax policy must consider the degree of importsubstitution. This indicates whether there is a need to develop revenuesources other than foreign trade, and how fast such a replacement is needed.Ethiopia's tax structure has changed towards taxation of domestic sectors,but whether import substitution made this necessary is not clear. No end-use import statistics are available, but Table 2 shows a classificationbased on commodity groups.

Table 2. Composition of Imports, Selected Years

ValueEth$ Million Per Cent Value

1950 1964 1950 1955 1962 19654

Consumer goods 67.8 140.8 64.3 53.7 48.2 45.8Raw materials, etc. 22.2 64.0 21.0 18.8 18.7 20.8Machinery, etc. 9.5 99.7 9.0 22.0 31.6 32.4Unclassified 6,0 1 57 5.5 1=S 1.0

105.5 307.6 100.0 100.0 100.0 100.0

Source: Far 1950 and 1955 figures from -"L iberation Silver Jubilee"Ministry of Information, Addis Ababa 1966; for 1962 and 1964

"Sztl-'i.ai L.c aI Abstract '965."

9. Table 2 shows that consumer goods have been of declining relatijve-m0p-rtanc- w"'le machinery has gained Importance. Quite at- from the

question of the reliability of these statistics, their interpretation causess~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~om r ob-M. A IA 1 4;- _; _ ;_ A1 _ , - 4__- _C _ ivsumer

ZZ~ -XJC*J.Is5

LII| A. O L I. V LUipA. LCL C .1LLIPUJJ. L_ VL W,..J UIII.

goods have grown in absolute value at an annual rate of more than 5 per cent.This could e_aAsily reflect the im port co.-ponent ozL the increased con LsJI0umptiL oIntJ.

The increase in machinery, then, might have been for the purpose of theexport Sector, th- ble transportatLion sector, andU other sectors which dU UiU notdirectly increase the production of domestic consumer goods. In short, itis not evident that import substitution has taken place in any large sca]e.On the other hand, there is a small but fast growing manufacturing sector(employing about one per cent of the population), and products from thissuch as textile and sugar have yielded a growing excise-tax revenue.

("HART 1

ETHIOPIA

TAXES, TAX STRUCTURE AND IMPORTS,19 4/ )U-15O90/ 00

(In millions of Ethiopian dollars)

500

'i ()(

101

300

600

1(00k ~ a eeu

949f5i 1951/52 1953/54 1955/561975 59616/719341G56

In irect taxeson Imports and Exports

4OK

_ -, -,/z *cRea / / / /

80~~~~~~~~~~~~~~~1 _nnts _____ ____ \ n

LMEMO-. O- l ~~~~~~~~~~MS' :O -''' f ,2

| . : ; i.. P., -1 . - lES/9e T c -

4~~~~~~~~~~~~~~1 0nits ;)i,a

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10. As shown above, the composition of imports has been changing sothat consumer goods carrving the highest import duty rates (see Table 5.p.l2) have been of declining importance. At the same time, machineryl'andraw materil2s which nre taxed at low rates and are now often exempted underinvestment incentive regulations, have grown in importance. However, thehigh rate of gronth in impnrts has more than nffset the negative revenue

effect of the change in import composition. Frequent revisions in tariffrates in recent years have in most -ases hea ficral motivsc hblt haveto aqln

been of a protective nature.

11. Taxes on the sale of domestic goods for domestic use have gainedimportance in the tax structure. Such taxation has been carried out throughthe transactions tax, higher taxes on alcohol, and increasing excise-dutyrevenue froru specific products1. The laes -a revenue source, is the turnover tax introduced in 1963/64.

12. Another feature in the tax structure change is the growing import-ance of income-tax revenues. This does not necessarily reflect the relativeimportance of the domestic sector, since income earned by exporters andimporters is subject to tne income tax. Thus Schedule C in the 1irLcUe taxlaw was until 1953/54 simply a 5 per cent tax on all imports and a 2 percent tax on exports in lieu of income tax on importers and exporters, buLthey are now assessed for income tax. The improvement in income taxcollections must be seen as a result of improving administration, moreprogressivity in the rates, and perhaps increased use of bookkeeping anda higher rate of monetization among taxpayers in general.

13. Finally, the revenue from land and cattle taxes improved about60 per cent in absolute terms, but this was far too little to maintainits relative position in the tax structure. The modest improvement stemsfrom increases in rates and perhaps improved administration.

1/ Machinery includes automobiles and durable consumer goods. The proportionof tnese goods in total imports, howeverX-, has been rather stable.

CHAPTER III

DESCRIPTION OF TIIE TAXES IN ETHIOPTA

14. Each tax will be described below in more detail. Apart from thedescriptive purpose, this will better indicate how the high rate of increase

in revenues has been gained for each tax with the view of determining whethert.Lhis process can continue in LtLhLe '.Loger run. LIn addition, it will serve as1

a basis for analysis of tax reforms which might be carried out in the shortrun. The latter aspect will e conslidered iln Chapter V !!Su-gestions.!

(a) Income tax

15. Revenue from the income tax was in 1965/66 about 12.5 per ceni ofall budgetary tax revenue, compared to only 6 per cent in 1957/58, and 5.5

per cent in 1949/50. The income tax was introduced in Ethiopia in 1943-/44as a schedular tax. Schedule A was on income from employment, from rents"and other income which can easily be assessed. -1/ The rate was progressive,ranging from 1 per cent to 15 per cent, and the tax was collected as aPAYE tax on employment income. Schedule B was for incomes from commercialand industrial enterprises, whichwere subject to a 15 per cent tax plus a10 per cent extra on income exceeding Eth$100,000 per year, small enter-prises with no bookkeeping were classified in seven categories, each paying

a fixed amount according to its classification. Schedule C was levied onexporters and importers as a 5 per cent ad valorem tax on goods importecdand 2 per cent on exports. This tax was clearly designed from the point: ofview of administrative feasibility.

16. In the income tax law of September 1956, the schedules were changedto Schedule A: income from employment, Schedule B: income from rents, andSchedule C: income from business, professional occupations, and interest.The rates in this law were made more progressive by the present law of June

1961, which increased the highest marginal rate for incomes from employmentand rent from 15 per cent to 21 per cent. In the eight years from 1957/58to 1965/66, income tax revenues increased from Eth$7.5 million to Eth$35.9million; about Eth$3 million of this increase resulting from the inclusionof Eritrea in the 1963/64 budget. The remainder of the increase was partlya result of increased economic activity, but restaffing of key positionsand administrative reforms in 1961 also were important factors explainingthe stepping up of the rate of growth in revenue.

1 "Economic Progress of Ethiopia" Ministry of Commerce and Industry,Addis Ababa 1955.

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17. As described above, the present income tax is a schedular taxwith no surtax. Thep inrnn iinsdnder Schbdule A is 211 inComp from

employment, including pensions. A deduction of Eth$30 per month- isincornorated in tho rnt-e shedule, with no differentiation as to family-status. Under Schedule B income from land and buildings used for nonagricultural purposes (-includg pa,.ents in kn-d-A is asse-ed. Deductions

from the gross income are allowed for taxes paid with respect to the landand buildings, except income --es and one third of th-e ----- incor,e for, - LF LLLAJiL1C Ua~_ aklUu ii LILJ. U Ui .. i ~ LALr_ L O . _JLL1~LU J

maintenance. Schedule C applies to income from business, from professionaloccupations, fror.. exploitation ofL woodus andU fLorests 'Lor lumlering U puorposeUs,

from interest (except interest on bank accounts), and from all other sources(except agricultural) not covered by Schedule A or B. Capital gains are nottaxed. Only interest paid to banks or insurance companies is deductible.DeprecLationi is ailowed at the following rates: buildings 5 per cent,machinery 16 per cent in the first year and 12 per cent in the followingyears, furniture 1U per cent, and motor venicles zu per cent. in specialcircumstances, the Inland Revenue Department-/can allow higher rates ofdepreciation if the life of the asset is shorter than the depreciationperiod; this special treatment, however, has only been given for drillingequipment for mining. No provision is made for carry torward of iosses.

18. The inland Revenue Department administers and controls incomeassessments in all provinces, and is also directly responsible for thecollection of income tax in Addis Ababa, where about 2/3 of the income-tax revenue is collected. The Inland Revenue Department has, for income-tax purposes, directly under the Director General the following sections:Administration Section, Inspection Section and the Addis Ababa Section.The technique of collection differs according to schedule. For Schedule A,the PAYE system is used; the employer of no more than 10 employees and withno employee receiving more than Eth$150 a month can pay by use of IncomeTax Stamps sold by the Inland Revenue Department to be affixed to cardsheld by the employer. The income must be declared by the employer notmore than one month following the month in which the salary is paid, andthe tax must be forwarded to the Ministry of Finance at the same time.When this is done, the employees are usually not identified by name ornumber. For Schedules B and C, the declaration and payment must takeplace simultaneously one to four months after the end of the accountingyear when books of account are maintained by the taxpayer. If books arenot maintained, the authorities will assess his income (see Annex A).If the taxpayer is not satisfied, he can appeal to the Tax Appeal Commissionafter payment of 75 per cent of the assessed tax liability within 30 daysof the assessment (50 per cent for a first-time assessment). It is possibleto appeal the decision of the Appeal Commission to the court; this is aslow procedure compared to that of the fast working Appeal Commission.Most appeals are made on the assessments of turnover. Statistics on taxarrears are not available.

1/ A monthly salary of Eth$30 is the common income for unskilled workersin Addis Ababa and in large enternrises in the country.

2/ Under the Ministry of Finance.

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19. The rates for the three Schedules A, B and C are practically

4dentical, but the progresslon continues to a higher level for B and Cthan for Schedule A. The rates are shown in Annex A; it should be observed

th'at the percentages in the Tablles are average and not marainnl nprcentag-

Thus a small increase in income can result in quite a large increase in

tax Ulablit.L ThLis effect is not, withl t-he present degree of sonhis-tication in income assessment, an important problem today. The highesitmLargtir,al (equal to tLie average) rate for salaries is 21 per cent forincomes of more than Eth$60,000; for rental income the highest marginaLrate is 26 per ceIt for income higher than Eth$30,000; and for profits,

the marginal rate is 36 per cent for incomes in excess of Eth$150,000.

20. No separate statistics are available for revenues from corporations

as distinct from personal enterprises. Neither is there a breakdown for

national collections by separate schedules. For the Addis Ababa office,

which collects two thirds of the total income tax revenue, the informa-

tion in Table 3 was made available.

Table 3. Collection of Income Tax in Addis Ababa

(in Eth$1000)

Personal Rental Business

Year Total Tax Income Tax Tax

(Schedule A) (Schedule B) (Schedule C)

1959/60 6,616 2,168 244 4,204

1960/61 11,457 3,239 370 7,848

1961/62 14,477 4,512 576 9,389

1962/63 16!234 5,658 644 9,9321963/64 20,015 6,588 993 12,434

1964/65 22,430 7,284 690 14,456

1965/66 23,294 8,423 655 14,216

Source: Inland Revenue Department,

The tax on salaries (Schedule A) has grown fastest during the years, but

the revenue from the tax on profits (Sc;edule C) still yields about two

thirds of total income tax revenue. As to the number of taxpayers, the

estimated numbers in 1965/66 were: for Schedule A, 2,000 employers

(perhaps 25,000 emDlovees); for Schedule B, 1,000 taxpayers; and for

Schedule C: Category A, 400, Category B, 1,000, and Category C, 4,000

taxpayers (for definitions of cateeories, see Annex A).

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(b) Import duties

21. In 1965/66, import duties yielded about 28 per cent of all taxrevenues. ut- aLso the transactions tax discrir.inates agaLnst i,ports:the rate is 12 per cent on imported goods (at the point of entry) and only5 per cent (at manuLactuLer s level) on domestic goods. In addition, oneper cent import duty is levied on all imports for distribution to a fewlarge municipalities and towns. There is no breakdown available of duty-free and taxable imports; Table 4 shows the average rate of import dutieson the value OI all imports. Including the Highway Renovation tax onmotor fuel, the average import duty has been about 27 per cent of importvalue; without this, import duties have averaged about 20 per cent ofimports. When the protective element of the transaction tax (12 per centminus i per cent = 7 per cent) is added, the total protective rate onimports has averaged about 32 per cent. (This difference seems quitesmall and might indicate the weakness of the data).

Table 4. Protective Taxation of Imports, 1956/57-1965/66

Total Average7/12 of Protective Rate of

Average Transaction Tax on Protective1/ Rate of Tax on Imports Tax on

Imports Import Duty-'Import Duty Imports (2) + (4) Imports(Eth$ Mill.) (Eth$ Mill.) (Per Cent) (Eth$ mill.) (Eth$ Mill.) (Per Cent)

(1) (2) (3) (4) (5) (5)

1956/57 167.8 46.3 27.6 9.0 55.3 33.01957/58 186.0 49.1 26.4 9.02/ 58.1 31.21958/59 201. 3 50.2 24.9 9.0 59.2 29.41959/60 178.43/ 40.7 22.8 7.8 48.5 27.21960/61 227.5 55.8 24.5 10.8 66.6 29.31961/62 246.5 65.3 26.5 11.5 76.8 31.21962/63 266.7 68.6 25.7 12.4 81.0 30.41963/64 291.9 81.3 27.9 13.5 94.8 32.51964/65 341.7 91.5 26.8 15.2 106.7 31.21965/66 376.3 107.5 28.6 17.1 124.6 33.1

1/ Including Highway Renovation tax but excluding Municipal tax.2/ Estimated.3/ Estimate for ten months to match the ten-month-fiscal year 1959/60.

22. To give some idea of the import-duty policy in recent years, someexainlpe of morp imrnortant tari ff changes are given below= It should hpkept in mind, that the tariff rates are before transaction tax and municipaltax are added. In 1964 a number of increases were made purely for fiscalreasons. The duty on tea was increased by Eth$1.00 per kg., raising it toEth$3.00 in bulk and Eth$3.50 packed. Also, the duty on iron and steel plateswas increased from Eth$10.00 to Eth$12.00 per 100 kg. At the same time, the

duties on -auto.mobiles were increased, the dut on passenger cars of avalue of less than Eth$4,000 and a weight of less than 1,000 kg. wasincreased LL JVro.. L L30L LU cent t4 ercnIL dU valoreri. For [ILore expen-sive or heavier cars, the rate was increased from 45 per cent to 55 percent adU vadloremI. T lhIe Uuty ont soa-p wadS raeLbdU from ZLHLILJ . UU LU ZLI11O. . UU

per 100 kg. Also a duty of 35 per cent ad valorem was introduced onformer duty-free imports of tape recorders and television sets. Finally,the catch-all category rate was increased from 25 per cent to 30 per centad valorem. In 1965, the duty on imported liquor was increased fromEth$22.00 to Eth$27.00 per litre of alcohol, which served protective aswell as fiscal measures.

23. Other increases were made primarily for protective purposes.In 1964 a protective increase on clothing and sewn articles was madefrom 35 per cent to 55 per cent; later in 1964 this was raised to 60 percent and in 1966 to 75 per cent ad valorem. In 1966, the duties on woventextile fabrics, etc., were increased. For textiles other than wool thenew increased rate is 100 per cent ad valorem or Eth$1.25 per squaremeter, whichever is higher. Also clearly protective was the change inrate structure on iron and steel plates in 1966. To protect a new enter-prise for galvanization, the duty on nongalvanized plates was reducedfrom Eth$12.00 to Eth$3.00 per 100 kg. and the duty on galvanized plateswas increased from Eth$12.00 to Eth$20.00 per 100 kg. Finally, the dutyon plastic materials for use in construction or furniture production wasincreased from 35 per cent to 60 per cent ad valorem.

24. The Highway Renovation Tax is a tax on motor fuel collected atthe point of import by the customs authorities, in lieu of import dutyand transaction tax. The tax, which was earmarked for the use of roadbuilding and maintenance, yielded in 1965/66 about 9 per cent of totaltax revenue. The law was introduced in 1948, and the rates have beenincreased repeatedly since; in the present law of 1964, they are forgasoline, Eth$0.225 per litre; lubrication grease and oil, Eth$0.235 perkilogram; diesel oil, Eth$0.185 per litre; and kerosene. Eth$0.175 perlitre. With the opening of the new oil refinery in Assab, this tax willbe replaced by an excise duty at the same rate to tax the domesticallyproduced products also 2/

25. To provide a fuller picture of the taxation of imported goods,Table 5 shows the breakdown by maior commodity 2rouos. Inclusion of theexcises of different sorts and the full transaction tax increases theaverage npercernte from abunit 12 ner cent (see Table 4) to about 35 nercent.

26. The amount of smuggling cannot be estimated, but it is believedtoo be of so.e importance. t-hi4oa p4 a countryit-hIc lonng -brdr which

can never be controlled effectively. On the other hand, the transportationneD-orl_ 4 A 1 LAi Ai 4Ai eA gAii; A ARAN.;~ - 1 1 4:- 1-__ .14 ---- ^h-t

LA WLJ 0. O ~.L LLL L. U. a, U an o C. L ~.UU£ ,L,~-, W 5-£ , -SJ -fLJ .CL - t

have to come from the Red Sea ports. The public acceptance of taxes isstill rather limitedI , making stricter en[jorcei.i.ert Udi.LLcLtELhL. opian

authorities argued that, especially for tobacco and alcohol, the bestpolicy to combat smuggling is to impose low duties.

I/ These were the plans as of December 19.u. The refinery was officiallyopened on April 1, 1937.

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Table 5. Average Rate of ,Import Duty, Transaction Tax on ImportsExcise Duties on ITLnnort and Highwa;l Renovation 'Tax,

by ComQo4ity Group, 1965

Imports Duty Average Rate(Eth$ Million) (Per Cent)

Food and live animals 19.9 ii.6 58.3

Beverages and tobacco 4.9 7.7 157.2Raw materials 18.1 3.3 18.2Mineral fuels 23.9 22.4 93.7Animal and vegetable oils

and fats 0.6 0.2 24.7Chemicals 27.1 7,5 27.7Manufactured goods 95.0 41.2 43.4Passenger cars and electricalhousehold equipment 14.1 5.7 40.4

Other machinery 126.4 12,0 9.5Other goods 45.5 i9-4 42.6

375.5 131.0 34.9

Source: The Government of Ethiopia's Statistical Office.

(c) Export taxes

27. Export taxes yield about 10 per cent of all tax revenue. Inaddition, a transaction tax is levied on the value of all exports at arate of 2 per cent. There are specific export taxes on coffee, hidesand skins (Eth$0.20 per piece), leopard skins, beeswax, ivory, civet,butter and bovine cattle. The composition of the transaction tax as wellas export duty revenue on different commodities is indicated in Table 6.

Table 6. Export Duties and Transaction Tax Revenue from Exports

1965Eth$ Hill. Per Cent

Coffee 16.7 79.9Hides. skins 1.8 8.8Oil seeds 0,5 2.4Crude vegetable mAterial 0.9 4.2Vegetables 0.3 1.4Other 0.6 3.3

Total 20,8 100.0

S.ource: Statistical Off.ce, rustoms Headquarters,

Addis Ababa.

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28. The export and transaction taxes are collected by thecustoms authorities. Table 7 indicates the average tax rates on exports;variations in the relative importance of coffee in total exports accountsfor minor fluctuations around 9 per cent. The introduction in 1964/65 cfthe surtax on coffee increased the percentage to 11.9, but the decline incoffee prices in 1965/66 brought it back to 9-4 ner cent.

Table 7. Taxation of Exports

Transaction AverageExport Tax on Total Tax Rate

Year Tax Exports Taxes Exports (Per Cent)

1958/59 12.2 3.1 15.3 171 A,l 8.91959/60 10.6 3.3 13.9 187.91/ 7.41a96/61 12.9 0 A i6.3 10 ill/ 8 ...''."~/ U.L ~ e-~. . t LU JS. .L- U .U

1961/62 13.9 3.5 17.4 195.71/ 8.91962/63 14.9 3.7 1 0 208I52/ 8.91963/64 21.6 4.5 26.1 258.52/ 10.1irill/Sc ,- n I I -, IT, ^^ ! . n94 :/6 U'I5 28.0 5 .4 33 .4 2O8. /- 1 .

1965/66 20.1 4.5 24.6 262.11! 9.4

Sources: Tax revenue from Ministry of Finance; exportfigures from IMF International FinancialStatistics.

1/ Calculated at 35 per cent of all exports for the calendaryear in which the fiscal year begins, and 65 per cent ofall exports in the calendar year in which the fiscal yearends.

2/ Actuals.

29. Prior to 1958/59 the basic export tax on coffee was Eth$20 per100 kg., then it was reduced to Eth$15. In January 1964, a surtax wasintroduced on coffee. The tax is a sliding scale with the rate adjustedmonthly according to the New York price for Santos No. IV. When thisprice is less than 30 cents per lb., no tax is collected; Eth$1.00 iscollected per 100 kg. when the price reaches 30 cents, and the taxincreases by one Ethiopian dollar for each cent up to Eth$21.00 when theprice reaches 51 cents and more per lb. As a result of the introductionof this tax, coffee was held back from the market, and the possibilityarose that the quota in the coffee year 1963/64 could not be fulfilled.The government then reduced the surtax temporarily by 55 per cent untilend-September, when the new coffee year began. Since then, the fullsurtax has been collected. In essence, the surtax amounts to one

- 14 -

Ethiopian dollar for each three dollar price increase. Table 8 indicatesthe average rate on coffee for recent years. The nercentage fluctuateswith the surtax; the low ratio in 1965 of 8.9 per cent, however, mightresult from statistical errors in the tax revenue=

Table 8. Export Tax, Surtax and Transaction Tax on Coffee Exports(in millions ofEt$

Average

Taxes (Per Cent)

1963 12.8 110.9 11.5

1964 20.2 158.9 12.7

1965 16.7 188.2 8.9

Sources: Tax revenue from the Statistical Office,Customs Headquarters; exports from IMFInternational Financial Statistics.

(d) Land taxation

30. Land taxes now constitute about 10 per cent of total tax revenue.They are composed of the basic land tax which yields about 20 per cent ofthe land tax revenue, the tithe on land yielding about 40 per cent, and theeducation and health tax on land which yields about 20 per cent each. tNodetailed description of the land ownership system will be undertaken here,but a brief indication of the very complicated system and its relationshipto the system of land taxation will be attempted. There are two systems ofland tenure, communal ownership and the landlord-tenant relationship. lhecommunal ownership is the system of land tenure in the north-western regions.It is based on the extended family; the right to use the land can be claimedby any member of the family, even those who have never lived on the land.The landlord-tenant relationship can take many forms. Gabbar land is ownedby a landlord who pays the taxes on the land to the national governmentofficials and usually has tenants. Maderia lands are granted to the ownerfor life time only. The owner is exempted from the basic land tax butpays all other land taxes. Gult is the right not to pay the basic land tax;this right is given to very few land owners, usually of the royal family.Rist-gult is the right to collect the basic land taxes from the "owners"of the land. The holder of this right can collect as much as possible,but will have to forward only a small fixed amount to the government.

31. The church has different kinds of land possessions. In somecases the church pays the tithe and the education tax; in other cases onlytLe hea.th tax is paid to the government. T-ie ihurch Is not strictly theowner of this land, but the settlers on clhurch land do not pay land taxesto the national government; instead they make payments--in services ormoney--to the church in lieu of tax. The church can decide who shallpossess this land.

32. in all cases, the payment of the basic land tax is the proof ofownership of land; where the basic land tax is not paid and no specialexemption is given (like Maderia or Guit) the land is formally consideredto be owned by the government although it might still be used by thetraditional users for grazing and the like. Not much is known about thedistribution of land; much land is held by very large estates, also whereit is ot good quality, and there is strong political resistance againsta cadastral survey. This resistance is easily understood when it islearned that a cadastral survey would result in a 100 - 200 per centincrease in taxes, according to various estimates.

33. The particular land taxes are briefly described in the followingparagraphs. The rates differ from province to province, and land is noc:valued by uniform standards. For these reasons, this description is on'lyof a very general nature. For tax purposes, there is a distinction betweenmeasured and unmeasured land. "Mieasured land" is measured in gashas (agasha is 40-70 hectares, depending on where it is measured) and classifLedaccording to quality; for "unmeasured land," the assessed value is acombined measure of quality and size.

34. Since the liberation, land tax and tithe both have been asses3edon money terms and levied on the land. A total of Eth$20 can be paid olnthe first category of unmeasured land and Eth$5 for the fifth and poorestcategory. For measured land, the total of land tax and tithe is Eth$45-50per gasha for the best land and Eth$15 per gasha for the poorest land.

35. The education tax is paid to the central government, but earmarkedfor expenditures on education in the sub-province (Awraia) where itis collected. The rate is Eth$13.50-15.00 per gasha for the best land andEth$4.50 for the poorest land. In some provinces, the education tax isassessed as 30 per cent of the land tax in 1934/35, plus the money valueof the tithe.

36. The health tax introduced in 1959 is earmarked for health nurnoses-In some provinces, the 30 per cent education tax rule is used; in others,the best land nays Eth$15 npr gasha and the poorest Eth$4=50 ner gasha, Formeasured land the rate is Eth$6 for the best and Eth$0.60-1.50 for thepoorest land. Tn the cities, the health tax is 30 per cent of the municinaltax on land.

37. The cattle tax is levied in lieu of land taxes on cattle breeders,w.?ho use untaxed grazing land. A cattle breeder who owns land does not paycattle tax. The tax is 50 cents per camel, 25 cents per head of cattle,horse or mule, 10 cents per donkey, 5 cents per goat or sheep, and one dollarper pig.

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(e) Transaction Taxes

38. In 1965/66, transaction taxes yielded 16 per cent of totalrevenue. Seventy-five per cent of this revenue is still derived fromtaxes on imports and exports. The present law is the Transaction TaxProclamation of 1963 which calls for a "tax on goods imported or exported,"a "tax on goods manufactured locally," a "tax on construction work," ancd a"turnover tax;" the latter two were not included in the former law of 1956.

39. For the first two taxes, the new rates were the same as in theold law, the changes being only in the nature of more precise definitionsand formulations. (Before 1963, there was also a local products excise.levied since 1957 on eucalyptus trees, stone, chalk, jewelry, coal andanimal products).

40. The tax on imports and exnorts is collected by the customs aut:hori-ties; it is 2 per cent of the value of exports and 12 per cent on imports,levied on the value net of specific imnort and expnort diities As mentrionpabove, this tax had its origins in the earlier tax on importers and exporterswhich was in lieli of inromp tax=

41= Thp tan on lnrall. mnunifartvrad gnoods is 5 nper ront, nollectep atthe manufacturer's level and administrated by the Inland Revenue Department.It is calculated hefore excise duty is added to the value of the goods . Thefollowing goods are exempted from the transaction tax: goods used as materialsand sold to producers liable to tax on thle f4ina proctA,-. --- As sold fo

export and goods sold by flour mills, bakeries and dairies.

42. The tax on construction work is a 2 per cent levy on buildingcontractors on all costs of construct-ion works except roads, bridges, cnurches,schools and hospitals, water and irrigation works, and work done for publicautho-rities leaving mainly housing for taxation.

43. The turnover tax is 1 per cent on gross revenues from sales, excepton imported goods when sold to traders, sale by manufacturers (except forsales at retail), and on tobacco, transportation, entertainment, flour, bread,milk, water, electricity and newspapers. Small traders with a net income ofless than Eth$360 are exempt. In fact, this tax is mostly collected at thewholesale level.

(f) Excise duties

44. Excise duties on sugar and textiles yielded in 1965/66 about 7 percent of total tax revenue; only 30 per cent of this was from imported goods.These duties were introduced in 1958/59, and are levied on domestically pro-duced as well as imported goods. In 1963/64, the rates were considerablyincreased, and resulted in a doubling of revenues. The du~)es are collectedfrom the manufacturer or importer by the excise department-'and the custcmsauthorities, respectively. The rates are: sugar, Eth$.15 cents per kilogram;cotton yarn including mixtures of manmade fibres, 15 cents per kilogram;and textiles wholly or partly of cotton, 35 cents per kilogram. Thus,domestically produced textiles are subject to a duty of 50 cents per kilogram(15 cents for the yarn and 35 cents on the fabric).

1/ Under the Ministry of Finance.

L17

45. The excise on alcnhol1 has hbeen inpreaqsed every f.ew years, and notwproduces 6 per cent of total tax revenue. Since April 1965 it has beencollected according to twnoA hpeiil, I S , I for 4irporte acolhol and

Schedule 2 for products manufactured within Ethiopia. Examples of theseschedules nre shown hblow-

Schedule 1 Schedule 2

Pure alco-ho1 - for use in production of

liquor Eth$8.00 litre Eth$4.00 litre

for use in production ofperfu.mes 0 " rr ') (.0

Denatured aLcolho-wl - 1 .Grappa 5.00 5.00Alcohl-olic liquors (if produced 'froml imtported

alcoholic liquors) -- 8.(0

Wine 2.50 " 0.25IDeer 0.20 bottle* 0.].2bottlePerfume 0.25 bottle** 0.25bottle*'

* Less than 350 millilitres**Less than 100 millilitres

In addition, local producers pay an annual license fee of Eth$500 for adistillery of alcohol, Eth$200 for production of liquor, and Eth$150 fora brewery, to give a few examples. The combined changes in import dutiesand excise on alcohol were intended to give an incentive to consumption ofbeer instead of liquor with a high alcohol content, and a shift in consump-tion is said to have taken place without any loss of revenue for thegovernment.

(g) Stamp duties

46. The revenue from stamp duties is less than 2 per cent of totaltax revenue. Stamp duties are levied on numerous transactions. Examplesare bills of exchange, checks, bonds, contracts, leases, insurance policies,receipts, transfers of immovable property as well as motor vehicles, andon admission-tickets to public entertainment.

(h) Tobacco

47. Most of the tobacco products sold in Ethiopia are produceddomestically from Ethiopian grown tobacco. On imported tobacco, the customsauthorities collect an import duty of Eth$10.00 per kilogram, the exciseof Eth$10 per kilogram, the 12 per cent transaction tax and the 1 per centmunicipal tax. In 1963, imports of Eth$2.00 million yielded Eth$3.2 million;

- 18 -

in 1964 imports were of the same value but yielded only Eth$3.00 million;in 1965, imnnrts wprp Eth$2 6 million and the reuenuie incrpesed to EthS3,4

million. The fluctuations in the ratio of revenue to imports must beaccoun-t e d forb frlbuctuion-4- ns in imnn,rt- nprice,-0s u1nde-r rcnmhined- Onopififr

and ad valorem rate system.

48. Domestic tobacco is subject to the excise duty and the 5 per centtrans-aCtion taX, col-lected by the government tobacco monopoly. Tn nAditinn

to these taxes, revenues are also derived from operations of the tobaccomonopoly. The tobacco m.onopoly distriLLutes all tobacco prducts, and or;.ltobacco with the monopoly stamp affixed to it can be sold legally in Ethliopia.1LA. ciLgarettes Iulported by the mUonopoLy iImust Lave "EthJJopia" prlnted on each0.

cigarette. Thus, smuggled cigarettes are easy to identify. The earningsoJf thie moniopoly stem 'LroLLi its operatLon of1 tobuacco plantations, production

and sale of tobacco products, matches and pocket lighters, and from itsexports. Table 9 snows the gross and net profits of the rm-onopoly tranLslerredlto the government.

TaDle 9. Gross and Net Profits ofi tne Tobacco Monopolvy ini Recent Lears

(in millions of Eth$)

Gross Net ProfitsYear Profits Transferred

1960/61 2.5 0.81961/62 2.6 2.51962/63 2.8 1.61963/64 3.3 1.91964/65 4.3 1.21965/66 5.8 2.3

Source: Ministry of Finance.

49. Table 9 shows that gross profits increased considerably duringthe years, but that the increase was largely retained by the monopoly enter-prises. The total level of taxation on tobacco may be best illustrated bythe price charged for a packet of 20 cigarettes: U.S.$0.25 for locallyproduced cigarettes and U.S.$0.50 for imported king-size cigarettes (abcutU.S.$0.42 for traditional size). These prices are not high by internationalstandards. The problem of smuggling, however, puts a limit on this sourceof revenue.

(i) Salt

50. There is an excise duty on salt, collected by the excise depart-ment. The rate is graduated according to the purity of salt. It has since19I9 been an unchanged EthS8 ner 100 kg. for salt of more than 90 per cc-ntpurity; Eth$5 per 100'kg. when the percentage purity is 70-90; and Eth$3per 100 kg. when. the percentage purity is.less tlLan 70.

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C() Tax incentives for investment

51. Already in 1950 Ethiopia made a "Statement of Policy for theE'ncou r a gLemLetnI o f- F o rei 4 gn Ca pa 4l ILLnvest. I..LiLent" w h i' c h. define. the . -Vet.mttpolicy toward foreign investments. This was followed in 1954 by the prco-

vision ofL tax. bL- Uenefits frl. iLoivesto rs lhLIM Lcultuld "an' a Lnd ILa.

Expansion Proclamation." This proclamation made the length of the income-tax holiday subject to th-le udiseretion of thlle Ministry ofL Finance and, unl ikte

the present proclamation, included services. By the introduction of the"Investment Decree" in 1963, services sucn as telephone and road buildinrgwere removed from the decree.

52. The decree applies to agricultural as well as to existing andnew industrial, mining, transport and touristic enterprises. An investmentcommittee is established consisting of representatives for the Ministriesof Agriculture, Commerce and Industry, and Finance, the Governor of theNational Bank, and a representative of the Ministry of Planning. The Chair-man is the representative of the Minister of Commerce and Industry.

53. The following benefits are offered:

(a) Income tax relief

Enterprises (except those manufacturing alcoholic beverages orliquor) which begin operations with all investment of more than Eth$200,000will, upon the recommendation of the Investment Committee, be exemptedfrom income tax for 5 years from the date of commencement of operations.When an enterprise invests more than Eth$400,000 in an expansion, theInvestment Committee can exempt income from the new investment from inccometax for a period of three years. A condition is, however, that the expan-sion is operated as "a separate technical unit with separate accounts."

(b) Import duty relief

54. Relief from import duties, transaction taxes on imports, municipaltaxes (but not minor changes like statistical fees and stamp duties) carL beclaimed for all kinds of machinery for use in agricultural and industrial

enterprises and for building materials for construction of industrial enter-prises (but not for office or living quarters). Relief cannot be grantedfor goods wqhich are being produced in Ethiopia.

(c) Export duty relief

55. Manufactured finished goods destined for export may be exemptedfrom export duties and transaction taxes on exports for "a reasonable periodof time if such exemption is found necessary to assure the competitiveposition of these goods on export markets."

(d) Ge-ne-ral prov%isionrs

56. The decree oivr assu,rance that foreign excchange will be madeavailable for repatriation of profits and of proceeds upon liquidation ofthe investment, as well as for spare parts arnd other materials requ,ired in

- 20 -

connection -4fTit-h operations. Foreign inverstors are allowed to a landnecessary for the enterprise, a problem which had earlier caused some troublefor fo g investors. T It 4is l 4 I Jtoo early to say whLet h ler th'e new Iaw -aiactually made it easier for foreigners to acquire land.

57. The investment decree which has been enforced since 1963 has recentlybeen sent to Parli.aent Lfor e:na.Iment. P at hlame£it Las UadUae a fewchanges in the decree. The major change proposed is that the amount ofexpans,on q-ualifying for a tax holiday be reduced from Eth$400 ,000 LU

Eth$200,000. Parliament has not yet enacted this proposal.

58. Nearly all new enterprises that have started operations in thelast three years have qualified for some benefits. Not all have qualifiedfor income tax holiday; nor have they all needed import duty relief. In fourcases, land has been obtained through the ordinance. No export duty reLiefhas been granted. In all,32 enterprises that actually began operations in1963-1966 have been approved for some kind of benefit.

Table 10. Number of Enterprises That Have Received BenefitsUnder the 1963 Investment Encouragement Ordinance

(Through November 1966)_/

Type nf BenefitImport

Total Tax DutyNo. Holiday Relief Land

1963 New EnterprisesAgriculture I -- -

1964 New EnterprisesAgriculture 3 1 3 --Manufacturing 6 4 3 2

ExpansionsManufacturing 1 1 -- --

Others 1 1

1965 New EnterprisesAgriculture 4 2 3 1Manufacturing 4 -- 4 1

ExpansionsAgriculture 1 1 -- --

Manufacturing 4 3 2 --

1966 New EnterprisesManufacturing 6 4 6 --

Expansions

Agriculture 1 -- 1 --

Source: Government of Ethiopia, Ministry of Commwerce and Industry.I/ nIn-uues on ly enterr4i ses Wh4ich 1[iav,! act-ually began operations.

CHAPTER IV

Objectives for Tax Policy

59. In this and the following chapter, the main objectives ofEthioDian tax Dolicv are discussed tozether with various sugzestions asto ways and means to achieve these objectives. In recent years, taxpolicy of Ethiopia has been dominated by the need for revenue. As shown.below, however, the expressed tax policy objectives are wider and moreambitious than mere1v resoutrne mnhili7ation-

60. The S-en Fiti Ve Yer Plan,publisheA in Ot-nher 1QA92 listpd

the following objectives of Ethiopian tax policy:

(l) The tax system should encourage economic development inconformit-, wi t h the -b,e c t ives of the economic -,!an.

(2) The systeml of taxes .must yield revenue sufficient to financethe Government's functions without endangering domesticstabl-i'y.

\3) TLIe tax systemn should be rLdUe ikiore progresLive.

(4) Domestic industries should receive necessary protection.

(5) Allocation of foreign exchange for imports of capitalgoods should be encouraged through the customs-dutystructure.

Recently, the Government has been preparing plans to increase tax burdenon the agricultural sector, for reasons of both revenue and equity. Inaddition, in the future Ethiopia may well face a balance ot paymentsproblem, as discussed in the main report. The tax policy needs thereforeto contribute towards export promotion and diversification, as well asto slowing down of the increase in imports for noninvestment goods.

61. In formulating tax policy a major factor is the likely amountof revenue needed in the coming years. In order to make such an estimateone might conveniently distinguish between the need to finance currentexpenditures and to mobilize resources for investments.

62. With regards r.oninvestment expenditures of the budget, theMission made a tentative projection, based on discussions with theEthiopian authorities, assuming an upward adjustment of civilian salaries,an expansion of education and health services, and a considerable increasefor defense and security (for some details see Chapter XIV of the MainReport). The projection indicates an annual rate of increase of P.5-9 percent in Government current expenditures. The major uuce-tainty is

- 22 -

undoubtedly related to the size of defense expenditures. The Missionreluctantly assumed an annual rate of increase of 10 per cent; it considerssuch a rate of increase to be a realistic projection, tlhough undesirably highfrom the point of view of social and economic development requirements.If the Government of Ethiopia would succeed in slowing down the rate ofincrease in defense expenditures, less domestic financial resources mightbe needed. The Mission also assumed that the maximum feasible increase ineducational personnel would be 12 per cent a year, and in health servicespersonnel 8 per cent a year. The absorptive capacity limitation to theexpansion in these services is the effectiveness in training large numbersof local teachers and medical personnel and building proper facilities duringa short number of years. In general, the margin of error in estimates ofboth defense and social services is bound to be large, and it could of coursehave implications for the budgetary requirements.

63. Second, the Mission made some estimates for public savingsrequirements in the following wav. External caDital reauirements have beencalculated to be consistent with exports projected on one hand and importrequirements on the other hand. Assuming that all external financingrequirements are financed by capital inflow, domestic capital requirementshave been Petimatpd 2S a reQiduii1l Frnm the lattpr figure; expected Drivatesavings have been subtracted, thus arriving at the requirements for publicsavings= Adding up the current expenditures projections anrl requirpmPrnt ofpublic savings, the Mission estimated the requirements for Government taxrevenues to be raised to an annual ratnC e of increase of 10.2 per cent.

64. AThe level of ir.vest.ments --.ttively sgetdby the Mis sion- to ~~~~~~~ (A~~~LA Of LLLA tU LaL.V

assumes strong efforts by the Government to overcome the serious4nstit-u-conal o'stacles, and greatly to -'ri,prove pro4ect preparation. In,t,LLL4L.LtLtJ. LiU LtL~ diU J,td.LLUIIJLV jOJL LA.L.()L .

this respect, the Mission may well have been too optimistic. The Mission'sexport projectLions also assume strong deveIUpmetL ef.LoLsL, specLLIaly

in the field of non coffee agriculture. If the two latter targets are tooam.bitious, then the need for tax revenues may have been set too high.Similarly, the Mission's projections for private savings are basedan very weak data, and are agaiiiULUJIL LU sb WLUec tLIoLaLLL Ura gLLUL LIt eJrrLn L

directions. The Mission's estimates for budgetary and tax revenuerequirements are thus subJect to a high degree Of uncertainty, partlybecause of weaknesses in data, and partly because of uncertainties as toUbasiC Government policies. The Mission thus stresses the need fora careful formulation of budgetary and fiscal policy, based on major policydirectives by the Government. Estimates of the need for revenue haveto be made because a too low rate of growth in Government revenues mightresult in inflationary pressures while too high revenues might possiblylead to inefficient use of resources, whether in the current or in thecapital budget; and might in extreme cases lead to a slow down in economicactivity.

65. However, in view of the described uncertainties, it is imperativethat even after a strategy for fiscal policies is adopted, the actualtax requirements and measures be reviewed annually. This can best bedone by coordinating the annual plan and the fiscal budget, as suggestedin Volume I, Chapter XI. Only when budgetary expenditures are wellestimated in a framework of general policies, can decisions on changesin taxes be made on a sound basis.

- 23 -

66. Promotion of economic development is another of the statedobjectives for the Government's tax policy. The objectives of tax policyin this connection are to promote an optimum pattern by a reallocationof investments by a system of incentives and disincentives. As discussedin the main report this would concentrate on increasing agriculturalproduction and industrial processing of agricultural products.

67. Because of the lack of data, it is not Dossible to analyze thedistributional effects of tax policy. The objective of the EthiopianAuthorities is that taxes he made more nrnoressuie- Distributional effectshowever, must also take into account public expenditures. For the past,it dnos nnt nnDnAr t-hat ripcnt aPkYPlnnmPnts in ni,hlib Pvnendit,irps hnlyT

had much redistributive effect, although expenditures for health andiducaitonn have grown slightly fastar than t-ha totnl rof cuirrent ovnenditu-es.

It seems evident that the relatively unequal distribution of wealth is amain crce,rro rof th-e inaeiinlity eof distrib on of

4ncome; 4n orAder to

mitigate this, heavier taxation of capital as suggested below would beaprorprnri ater r -tr.

CHAPTER V

Suggestions for Tax Policy

68. On the basis of the preceding discussion of Ethiopian taxpolicy and the description given in Chapters II and III, specificsuggestions are made for improvements in the tax structure.

69. Assuming that administrative improvements continue to increaseat the same rate as in the past, but that no changes in the tax rateswill be made, a projection for tax revenues inc!icated an annual increaseof 7 per cent. This is essentially based on continuation of past trendsin tax revenues. A rate of increase of 7 per cent is insufficient tomeet the target set above for an 10.2 per cent incre as The followingsuggestions, therefore, will indicate some ways to increase tax revenues,taking, int-o arc-count- trhe dit-rihiit-iona1 and re,oirce allocation aspctsof tax policy. The long-run strategy for mobilizing tax revenue inEthiopia will continue tobe placed on the development of modern taxeson income and domestic transactions. There is of course a limit tohow much these taxes can be increased and the required rate of growthin revenue is high. Therefore, the Mission has also suggested some

relative importance of taxes on the imported and exported goods. Thisi.,mplies that er,ph'asis be put on expansion of thear,nsrair of theiUi J. LLCL ~LiJ L~ i v Ae o C CIL1 LulUL VI. L dU MULLL L.LZ CIL LU Ul l

Inland Revenue Department, the Excise Department and the Tobacco Monopoly.

(a) Income tax

70. There is little doubt that the taxes on income and profits, nowcontributing 12 per cent of tax revenue, will become a more importantrevenue source in the long run. Increased monetization; improved administrationespecially in tLe 1rovnces-an increased economic tiv i ty wiil ,LCma'Ke thle

revenue grow at a relatively fast rate. The administration of the incometax has been improved considerably in recent years. A travelling team toassist the provincial authorities has been established, and in the lasttwo years the number of auditors has been increased from 4 to 10. Thereis still scope for considerable improvement, however, especially in theprovinces. An effort is being made to send younger people out, whoseabilities in writing and arithmetic will speed up the work and make itpossible to collect more. To step up this development, more attractivesalaries might be necessary.

71. The schedular income tax is not wholly satisfactory from anequity point of view, especially when it is not supplemented with a surtaxon the combined income of a taxpayer. At present, it is not administrativelyfeasible to include salaries in a unified income tax, but the two schedulesfor rent and profits could be combined in one schedule. Since the ratesof the two schedules are practically identical, only taxpayers with combined

- 25 -

incomes from both sources would pay more taxes as a result of such a step.

72. Some remarks are warranted on the income tax on agricultural incomenow under consideration. This tax is planned to become the main revenuesource for the new local administration units (also still under consideration),and will replace the tithe. The tax is intended to be very simple. Farmers,that is, landlords as well as tenants who have income from agriculturalactivity, will be subiect to a flat tax varying with their classificationby local assessment committees. The basic minimum rate will be Eth$3, butthe liability will be higher for farmers in higher income clasis. Itmight be argued that an increased income tax burden on the landlords,especiallv if strengthened by increr e 1d tnvation from Iand (see below), willgive them an incentive to extract more from their tenants. This, however, willhardly be nosihble unleas tho tnannts are given incentives, financing .ndeducation to improve their production. The tax will be an additional burden onthe pooreszt rurllr popuatlnion, butF migaht give him incfeniv,es to 1 cutivawte Icahcrops or to sell livestock. Finally, it is hard to see how such a tax canbe administered and too much reliance should not be put on the expected revenuefrom this tax in the first several years.

73. The corporation income tax is progressive, and favors smalluU .Z o | aco;a uy cL "A L c&LV UL LUV FC L kCLLL X, aa LL L LlIC L1 L16tiUL UL 9LN=L -aL$-

of 26 per cent and 36 per cent. Dividends are not taxable when tax has beenpadon the corporate profit. Atax oni `ividen's would ten' to encourap,e

padLUUL LiL U~ULL 9 L.L * iLXU UiV LUCU WUULLUU [cud;

retention of earnings in the business, which might increase investment andprotect the balance of payments. This could be done by introducing awithholding tax on dividends of, say, 16 per cent (the maximum rate underSchedule C on profits). At present, the average effective corporate rai:e istypically less than 30 per cent and the introduction of a tax on dividendswould not increase the level of corporate taxes to a high level by inter-national standards. Since most dividends are paid to foreign shareholders,their taxation in the country of residence should be taken into account.,Where a tax credit is given (as in the United Kingdom, the United States,Germany and Japan) or where foreign dividends are exempt (as in Canada,France, the Netherlands and Switzerland)lla low rate tax on dividends wouldnot result in double taxation of the foreign investor: withholding tax ondividends in the former cases would only result in a transfer of revenuefrom the foreign government to the Ethiopian government.(Ethiopia has nodouble taxation agreements with other countries).

(b) Gift and inheritance taxes

74. Ownership of wealth in Ethiopia is highly concentrated in largeestates and other holdings. Higher taxation of this capital would contribute

1/ Italy taxes foreign dividends at a reduced rate.

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to the progressivity of the tax system and result in a better allocationof resources. This could be accomplished through a graduated tax ontransfers of property at death or by gifts. However, they would hardly bean important source of revenue.

(c) Import duties

75. Revenue projections for import duties indicate a lower rate ofgrowth than in the past. First, foreign exchange is dominated by coffee,and the prospects for coffee do not look very good. Second, the composition

of imports might continue to change with improved economic development.Because of low rates and exemptions under the investment decree, revenuesfrom raw materials and machinery are low (Table 5); and import substitutionwill increasingly restrict revenues from imports subject to high duties.It is not clear howq large a role import substitution has played in theeconomy in the past. But it seems clear that economic development willenlarge this role. Increased tariff rates on luxury goods will discourageimports, introduce an element of progressivity in taxation and could bean important source for revenue. For this reason, it could be argued thatthe authorities should now make a greater effort to control smuggling oftraditionally high taxed goods such as cigarettes and alcoholic drinks.Such efforts might make future increases in the rates on these articlespossible. Thle rates on goods like automobiles, electrical household equipment,and perhaps gasoline, also could be increased to introduce greater progress-ivitv in thie tax svstem. (Ethionia is not a member of GATT and is underno contractual international obligations as to tariff policy). In short,thprp is sconp fnr some increases in the average rate of taxation of importswhich could be used as an alternative to one or more of the steps outlined in

76. Export taxes, c-an rem-ain -as a eatvl importa_nt- sorcel- of revenuein the future, even when the domestic sector develops. Taxation of coffeeexports nowr accounts for 80 per cent of this revenue Twn asnects of exporttaxes on coffee merit attention: the impact on resource allocation and t:heequity aspects. Although the situation is not at all aler, iJt sees that

Ethiopian production of coffee in recent years has just been large enoughtLo Lull J. '. One quota under the4 nternational coffee agree.et.t New roads w-.v-1-

open up new coffee land in the coming years, which could lead to considerableincrease OL suppLy. TLLhus, tLe Gore-Bedelle road alone could result in apotential increase of 6-7 per cent of the total supply at present prices.

77. The total quantity of coffee which can be exported will continueto be limited because of tne international cofLee rHiLarket condlitions; ULthere-

fore the quantity bought by exporters from middlemen will also be limited.Thus, subsequent to the opening of new roads in the coffee regionl, prices

the exporters will pay may indeed be expected to decline, in which casetheir profits will increase. An increase in coffee export tax may reducesuch additional profits without affecting the quantities marketed.

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(e) Land taxation

78. A modernization of the system of land taxation in Ethiopia could wellserve the purposes of both improving the allocation of resources and equity.A cadastral survey is estimated to take 2-3 years for the first province andabout 2 years for each succeeding province, thereby taking some 30 yearsto complete. It would be useful to call in a foreign expert to determirne howa cadastral survey could be completed more expeditiously. Such reform couldgreatly augment revenues in a way that would enhance the progr'ess.ivityof the revenue system. As already indicated, it is possible that highertaxation might result in an attempt by the landlords to extract more fromtheir tenants. This might encourage the landlord to improve production byhis tenants, and induce him to provide them with incentives, credit andeducation.

(f) Indirect domestic taxes

79. The system of a 5 per cent manufactrer's sales tax. a 1 Der centturnover tax on wholesale and retail trade (in practice, mainly at thewholesa;le enrl) and aditionnal exrcises on suganr, textiles,- alt- alcoh!oland tobacco must be analyzed in combination with the import duty structure.Since the genarnl sales taxes only cover a nart of all t-avnhle transactionsbecause of administrative difficulties, a sales tax at several levels mightbe ,ustified. The cascade effect, however, should strictly lim.it anyincrease in the turnover tax rate. It could be argued that the system cftransaction 'Caxes shCould serve as a revenue instrumLent only, leaving -hth

protective functions to the tariff. This is not the case. The transactiontax A l1scr- r., inat es 4__ -agains ir,ore god (12 per cen colete by -the- U.C A U.A~U. JAHi.LLICL. Ca tCL.L&1L L UpU VU5 U QU l% . Z I ..L U LIT I.U1. L~.LC% U uiy LIIL'-

custom authorities, against 5 per cent at the manufacturer's level on domesticE 'T'L: :_ _ :,_ 1 __ L _ __1_ ___ _goouus . silit _ is a minorui Ui o 'LL Lu unas d: t Le toaL piCLULr i kept in ri Lnd .

There is no indication that the present system of indirect taxes is not welladministered, given tne conditions. Tis does not mean, however, LtIdL tnere isno room for improvement. The new turnover tax, for example, is at presentcollected at only about 300 enterprises, and a considerable revenue increasecan be expected in the coming years.

80. A more important problem is the high protection in some industries,notably the textile industry and tne sugar industry. A reduction of theprotective duties would result in a revenue loss which Ethiopia cannot afford;import duties on textiles, for example, are an important revenue source.Instead, excise duties levied only on the domestically produced goods couldbe introduced. Such excises would yield an increased revenue for the Governrmentand at the same time mop up profits in industries with very high protection.They might, however, have a regressive incidence; to mitigate this, thenumber of goods taxed under the present excise duties could be expanded.Additional revenue could be raised if the number of goods taxed under thepresent excises (levied on imported as well as on domestic goods) couldbe expandecl, and a more progressive, revenue-flexible system of excises couldbe devised that is based on a wider range of goods selected (1) with a ratherlow price inelasticity of demand but with a high income elasticity, (2) whichare more important to the rich than to the poor, and (3) are easily administered

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High quality clothing and leather shoes, bottled soft drinks, factorymanufactured furniturej ruas and carpets, tranS4stor radios and batteries,are examples of goods which might qualify for sucn excises.

(g) The tobacco monopoly

81. The mission did not have the opportunity to analyze in any detailthe operatio. of thle tobacco ...onopoLy. The totaL revenue IromUI to'ac.o inEthiopia (including imports and local production) is only about 2 per centof all budgetary revenues. Tigi i Ws Low coL,,pared to other countries. Ln

a recent year the revenue from the tobacco monopoly was 14.1 per cent of totalbudgetary revenue i- the Republic of China, 6.4 per cent in Iran, 4.7 percent in Japan, 5.4 per cent in Korea, and 3.9 per cent in Thailand. Sinceth'le price charged ior tobacco products sold to customers in Ethiopia doesnot seem low, consideration should be given to increasing revenue throughimoproved management of the tobacco monopoly. Additional measures would benecessary to eliminate smuggling.

(h) Tax incentives for investment

82. Although there are no estimates of revenue loss, there is seriousconcern among Ehtiopian officials that benefits are too large and are givento nearly every new enterprise under the investment decree. It is doubtfulwhether tax benefits were a decisive factor in the decision of most firmsto invest in Ethiopia. Thus, an unknown amount of tax revenue seems tobe lost, with uncertain benefits. To limit the revenue loss, the "pioneerindustry" approach might be introduced as part of the planning policy.According to this approach, the benefit would be limited to certainpriority industries which would be identified as pioneer industries. 'rhedeclaration of such a pioneer industry should only be made after consuLtingthe Ministry of Planning.

(i) Conclusions

83. The limited statistical information available in Ethiopia makesit quite difficult to estimate the revenue effect of the suggestions madein this report. An attempt has been made, however, to give a rough indica-tion of the effort needed in the years to come.

84. Assuming that the Ethiopian authorities will be able tomaintain the annual rate of increase in government current expenditure."at 8.5-9 per cent, the increase in government tax revenue, as indicatedabove, will have to be at a rate of about 10 per cent. As alreadyindicated (para. 69), budgetary revenues might grow at an annual rateof about 7 per cent if no steps are taken to increase tax rates orintroduce new taxes. To step up the rate of increase to about 10 percent, the following additional revenues are suggested:

1. Introduction of a withholding tax on dividends (para. 73)

2. Introductinn of gift and inheritance taxes (para, 74)

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3. An increase in export tax revenues (para. 77) in 1957/J8,and an adaitional increase in i9i1/72.

4. Strengthening of revenues from the tobacco monopoly (para. 81)and taxes on alcoholic beverages.

5. Introduction of new excise duties levied only on domesticallyproduced and consumed products (para. 80), which will alsoserve to mop up excessive profits of protected enterprises; and

6. An expansion of the system of existing excise duties (leviied ondomestically produced goods as well as on imports) andappropriate rate adjustments (para. 80).

The mission's projections assume a very small increase in revenuefrom taxation of land in the short run. Immediate steps should be taken toprepare for a cadastral survey as discussed in Volume II so that this sourceof revenue can be strengthened.

85. It should be emphasized that these suggestions if executed will notraise Ethiopia's tai effort up to the level of highly taxe(d developing countries:in 1972/73 Ethiopia's tax effort would be close to the average for a count:rywith the same per capita income and the same degree of openness (para. 5).

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ANNEX A.

Income Tax: Rates

Schedule A (Salaries)

Taxable income per month Tax per monthEth$ _ Eth$ or per centl/

0 - 30 nil0 - 40 0.75

40 - 50 1.50

50 - 60 2.0060 - 80 2.75

80 - 10 3075

100 - 125 4.75125 - 1I 0 6.00

150 - 175 7.50175 - 200 q.no

200 - 250 13.50

250 - 300 18.00

300 - 350 22.50

350 - 400 27.00

- -5 -.

CZ r-A rnn Z~~~~~~~~~~~~~21 nnt4.5j = 50 Ju.60500 - 550 40.005 - C000 10 4 600

600 - 650 52.50650 - 700 -.

IUU~ - /.UV UV . Uu

700 7 50 67.50750 - 800 10 per centornr OrCs is I I I I Iu80 - 850 10. "

850 - 900 11. "900 - 950 ~~~~~~~~11.5 "

950 -1000 121000 -1075 13 " "

1075 -1150 141150 -1250 151250 -2500 16

2500 -3125 173125 -3750 183750 -4375 19 ' "4375 -5000 20 "5000 21 '

/ The percentage is the average, not marginal rates.

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Schedule B (Income from Rent)

Taxable annual income Tax per annumEth$ per centl

0- 360 N11.360 - 960 2960 - 1800 3

1800 - 3000 43000 - 4500 5

4500 - 6000 66000 - 7200 77200 - 8400 88400 - 9600 99600 - 10800 10

1.0800 - 12000 1112000 - 13200 1213200 - 13800 1313800 - 14400 1414400 - 15000 151.5000 - 16

1/ The percentage is the average, not the marginal rate.

For income exceeding Eth$30,000, a surtax of 10 per cent of theexcess income is paid under schedule B.

Schedule C (Profits)

Taxable annual income Tax per annumEth$ Eth$ or per cent

0 - 360 Nil360 - 480 10480 - 600 18600 - 720 24720 - 960 33

960 - 1200 451200 - 1500 571500 - 1800 721800 - 2100 902100 24n0 108

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Schedule C (cont'd)

Taxable annual income Tax per annumEth$ Eth$ or per cent

2400 - 3000 1623000 - 3600 2163600 - 4200 2704200 - 4800 3244800 - 5400 378

5400 - 6000 4326000 - 6600 4806600 - 7200 5527200 - 7800 6307800 - 8400 7208400 - 9000 8109000 - 9600 10.0 per cent-/9600 - 10200 10.5 " "10200 - 10800 11.0 " "

10800 - 11400 11.5 TIt

11400 - 12000 12.0 " "12000 - 12900 13.0 "

12900 - 13800 14.0 " "13800 - 15000 15.015000 - 16.0 "

1/ The percentage is the average, not the marginal rate.

On incomes exceeding Eth$30,000; a surtax of 10 ner cent is npid.and an additional surtax of 10 per cent is levied on incomes in excess ofEth$150,000 under Schedule C.

For cornorate bodies with limited liability, the r are:

Annial t-aabhle inome Marginal rate(Eth$)

0 - 30,000 16 per cent30,000 - 150,000 26 "

150,000 36

If paid-up capital is m,ore th LIan Eth$5 cLL'J milli.on, L[le l Imits ilnthis schedule are increased by a coefficient equal to one fourth of thenumber of complete million dollars paid up. wIhen corporate income tax ispaid, dividends are exempted.

- 3 3 -

For Schedule C, the number of taxpayers has been classified inthree groups for administration purposes. Category A includes all companies(disregarding their turnover) and any other business having an annual turnoverof Eth$250,000 or more. Category B includes businesses with a turnover ofbetween Eth$48,000 and Eth$250,000, professionals with gross income more thanEth$12,000, and other businesses with a net income of more than Eth$6,000.All other taxpayers are in Category C. Taxpayers in categories A and B, areobliged to keep books of different degrees of sophistication; taxpayers ingroup C are placed in one of 15 classes and pay tax accordingly.

Estimated taxable income per year Amount of taxClass Eth$ Eth$

1 Over 360 to 480 102 Over 480 to 600 183 Over 600 to 720 244 Over 720 to 960 335 Over 960 to 1,200 456 Over 1,200 to 1,500 577 Over 1,500 to 1,800 728 Over 1,800 to 2,100 909 Over 2,100 to 2,400 108

10 Over 2,400 to 3,000 16211 Over 3,000 to 3,600 21612 Over 3,600 to 4,200 27013 Over 4,200 to 4,800 32414 Over 4,800 to 5,400 37815 Over 5,400 to 6,000 432

Ethiopia: .ax Structure 1949/50 - 1965/66 (ActuAls)

19.49/50 1950/51 1951/52 3-952/53 1953/54 1954/55 1955/51 1956/57 1957/58 1958/59 1959/60 1960/61 1961/62 1962/63 1963/64 1963/64 1964,/65 1165/1610 -thp rxcluding includingtEritrea Eritrea

(In mllLiona of Ethiopian dollars)

1. :co c tax- 3.1 3.1 4.4 5.7 6.0' 6.2 6.8 5.2 7.5 10.0 9.6 15.JL 19.9 22.2 27.8 30.5 32. P..'2. L nd and cattle tax 17.2 17.9 18.2 18.6 18.6 19.3 19.5 19.2 19.1 19.0 20.3 25.0 25.8 22.5 24.5 26.4 26.6 2-.jInj-ct on ir.ports and e,ports : 32.6 37.0 43.4 60.0 79.7 70.2 73.2 84.4 86.5 4.1 70.0 91.3 101.8 109.7 132.9 132.9 153 5 l'd 'iirect on d-.estic 3.3 3.7 4.1 6.6 8.1 7.6 9.7 11.3 12.7 14.5 20.0 24.6 29.4 31.0 42.9 45.5 51.3 5... o al tax revenue 56.2 61.7 70.1 90.9 112.4 103.3 109.2 121.1 125.8 127.6 1i9.9 156.: 176.9 185.4 228.1 235.3 263.9 2 .6. !on.tax revene U.0 9.6 8.6 12.8 I.4.C 13.4 12.9 13.5 14.6 19.5 13.2 27.5 22.5 29.5 31.5 36.8 31.9 3^ rent revunec 67.2 71.3 78.7 103.7 127.2 116.7 122.1 13J.6 10.4 147.1 133.1 185.8 1994 214.9 259.6 272.1 295.8 32-

(In pe cent o la^^=xi

1. Inco,.e tax 5.5 5.0 6.3 6.3 5.3 6.0 6.2 5.1. 6.0 7.8 8.0 9.9 11.3 12.0 12.2 13.0 12.3 12.42. Lund and cattle tax 30.6 29.0 26.0 20.5 16.5 18.7 17.9 15.9 15.2 14.9 16.9 16.1 14.6 12.1 10.7 11.2 10.1 9.-3. :niirci t on irports and exports 58.1 60.0 61.8 65.9 71.0 67.9 67.0 69.7 68.7 65.9 5.A 58J, 5715 59.2 58.3 56.5 58..2 ;2.4. :edi,ct on donestic 5.8 6.0 5.9 7.3 7.2 7.4 8.9 9.3 10.1 144 iM.7 3..7 16d 16.7 18.8 19.3 19.1, 195. iotal ta: revenue 100.0 1(0.0 100.0 100.0 100.0 110.0 100.0 103.0 10OJ 100.0 1O.0 100.0 100.0 100.0 100.0 100.0 100.0 LOC.26. ontax revenue 19.6 15.6 12.3 14.1 13.2 13.0 11.8 11.1 11.6 15.3 LL.0 ail 1A7 15.9 1L3.8 15.6 12.1 13.2

So.cc: Inlr,eation fran the i3inietry of Finance.F/ or 1949/50-1953/54, the estimated amwout of the old schedule C i9 shosn under 3.

g/ ILncludes hl0 hway tolls as a tax on notor fuel 1949/50-1951/52. Includes Federal- transaction tax and Federal extise forite ,11 revenue 195S/57-1957/58/ Jnclede all revenue fron "Other indirect" (moet:Ly lees than Eth9 milLion). Revenue fr-e excise on alcohol asse-d dotreitc.

ANNEX C

Actual Current Budgetary Revenue in 1960/61 - 1965/66(]n millions of Ethiopian dollars)

96 096r6 1 1961/752l '6263 1963/64 1963/64 1964/65 1965 66Excluding Including.Eritrea Eritrea

Income tax 15.4 19.9 :22.2 27.8 30.5 32.5 35.9Land and cattle taxes 25.0 25.8 22.5 24.5 26.4 26.6 27.3indirect taxes on imports and exports 91.3 101.8 109.7 132.9 132.9 153.5 168.8Motor fuel (15.9) (16.7) (19.1) (20.3) (20.3) (22.6) (26.5)Import duties (39.9) (46.8) (49.5) (61.0) (61.0) (68.8) (81.0)Export duties (12.9) (13.9) (14.9) (21.6) (21.6) (28.0) (20.1)'Transaction tax on imports cnd exports (21.9) (23.4) (25 0) (27.7) (27.7) (31.4) (34.0)Excises on imported goods (0.7) (1.0) (1:2)1- (2.3)1- (2.3)1/ (2.7)1./ (7.2)]/Indirect taxes cn domestic goods 24.6 29.4 31.0 42.9 45.5 51.3 56.9Excise on alcohol (7 .3) (8.83) (8.6) (12.3)_./ (12.7) (14.8) (15.5)Tobacco (monopoly profit, regie

tax and licenses) (2 .2) (4.3) (3.0) (3.6) (3.6) (3.7) (5.i0)Stamp duties (1.8) (2.13) (2.3) (2.6) (3.6) (3.5) (4.2)Other indirect (1.() (0-5) (1.4) (0.5) (0.5) ---Salt tax (4.5) (5.1) (5.7) (5.7) (5.7) (51.9) (6.4)Excises on domestic goods (4.5) (5.0O) (5.9) (11.8) (11.8) (13.4) (13.9)3'Transaction tax on domestic goods (3.3) (3.7) (4.1) (6.4)_/ (7.6)_/ (1CI.0)A/ (1].9):3

Tax revenue total 156.3 176.9 185.4 228.1 235.3 263.3 288.9Nontax revenue 27.5 22.5 29.5 31.5 36.8 31.9 38.2

Current revenue4/ L83.8 199.4 214.9 259.6 272.1 295.8 327.1

Source: Ministry of Finance.1/ Inc!udes federal alcoholic cons. tax.2/ "Other indirect taxes" in Eritre!a all allocated to this iterm.3/ Includes turnover tax and tax on construction work.4/ Does not tally with official figures, since employdes' contribution to government pensiiDns

is ineluuded and employers' contribution is riot included.