The Corporate Tax Burden in Ethiopia: Evidence from Anonymised Tax Returns

Abstract

Many low income countries face the challenge of increasing tax revenue dramatically while minimising distortions in the economy that may discourage investment and, more generally, economic growth. In this context, corporations have to contribute to the public purse but their tax burden should still allow them to prosper. Despite the importance of this topic, very little evidence is available so far on the corporate tax burden in many low-income countries, including Ethiopia. This paper fills this gap by calculating and analysing effective tax rates (ETRs) across Ethiopian corporations. ETRs are broadly defined as the ratio of taxes to income paid by a firm and represent the tax burden on firms. ETRs differ from statutory tax rates (those defined in the law) because firms can benefit from a range of legal provisions and other practices, such as aggressive tax planning, to reduce their tax burden. Therefore, despite a flat statutory rate, ETRs can vary across firms depending on size and sectors, amongst other firm-level characteristics.

De nombreux pays à faible revenu font face au défi d’augmenter de façon majeure le revenu fiscal tout en minimisant des distorsions dans l’économie qui pourraient décourager les investissements et, plus globalement, la croissance économique. Dans ce contexte, les sociétés doivent contribuer à l’enveloppe publique mais leurs charges fiscales doivent tout de même leur permettre de prospérer. Malgré l’importance du sujet, il n’existe à ce jour que très peu d’informations factuelles sur le poids des charges fiscales sur les sociétés, notamment en Ethiopie. Résumé du document de travail 48 par Giulia Mascagni et Andualem Mengistu.