Subnational Value Added Tax in Ethiopia and Implications for States’ Fiscal Capacity
Yesegat, Wollela Abehodie
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In most federal systems, state governments are funded through a combination of direct fiscal transfers from the central government, and the revenue they collect directly from locally adopted taxes. Ethiopia is a federal polity, but follows a slightly different path in the case of its most important tax source – value added tax (VAT). As is the case in many developing countries, VAT is a major source of government revenue in Ethiopia, and the tax is levied under central government legislation. However, unlike the more common practice of a central government collecting VAT and then earmarking some of the revenue for transfer to states, collection rights and administration powers over VAT imposed on a portion of the economy in Ethiopia are assigned directly to state governments. The result is a fiscal relationship between central and state governments in Ethiopia that is distinctive in three main respects.
CitationYesegat, W.A. and Krever, R. (2018) Subnational Value Added Tax in Ethiopia and Implications for States’ Fiscal Capacity, ICTD Working Paper 75, Brighton: IDS
Is part of seriesICTD Working Paper;75
SponsorBill and Melinda Gates Foundation
Department for International Development