The Ministry of Finance has confirmed that Ethiopia will introduce a combined 30% tax on petroleum products for the 2025/26 fiscal year, composed of a 15% value-added tax and a 15% excise duty, Capital News reports.

Fuel prices have climbed more than 50% since mid-2022, when the government began phasing out subsidies to curb public spending and address market distortions. Analysts warn the new taxes could further elevate inflation, which reached 13.7 percent in August 2025, while increasing operational costs for transport, agriculture, and manufacturing sectors.

Finance Minister Ahmed Shide told parliament three months ago that the fuel tax is intended to regulate subsidies, not remove them entirely. In addition to VAT and excise duties, a new motor vehicle transfer tax has been introduced to bolster revenue collection as part of broader efforts to strengthen public finances without significantly widening the budget deficit.

Ethiopia’s tax-to-GDP ratio remains below 10 percent, one of the lowest in Sub-Saharan Africa. To expand domestic revenues, the Ministry of Finance plans complementary reforms, including a Minimum Alternative Tax and adjustments to withholding income tax, targeting total revenues of roughly 1.93 trillion birr.

The government anticipates a 416.8 billion birr fiscal gap for 2025/26, to be covered primarily through domestic borrowing of 277.5 billion birr and 112.6 billion birr in support from development partners. Despite public concern over higher fuel costs, the Citizens’ Budget projects GDP growth of 8.9 percent, a decline in inflation to 11.9 percent, and a reduction of the fiscal deficit from 2.06 percent of GDP to about 1.0 percent.