Ethiopia’s tax system continues to rely heavily on consumption and transactional levies, with indirect taxes making up the bulk of government revenue, according to the Ethiopian Economics Association’s latest Quarterly Macroeconomic Update.

The report, covering the first quarter of fiscal year 2024/25, shows that while the federal government maintains a strong revenue mobilization drive, the structure is heavily weighted toward trade and consumption taxes. Analysts note that such reliance raises concerns over equity, as lower-income households bear a proportionally higher tax burden.

Of the 153.7 billion birr collected in total tax revenue during the quarter, 77% —or 118.4 billion birr—came from indirect taxes, including value-added tax (VAT), excise duties, and customs levies. Direct taxes, covering personal and corporate income, accounted for just 23%, or 35.3 billion birr.

The EEA observes that the dominance of consumption-based taxation makes administration easier but perpetuates a regressive structure common in many low-income countries.

The surge in indirect taxes was largely driven by foreign trade levies. Total indirect tax revenue rose 70.9% year-on-year, with import duties climbing 78.2%, reflecting the government’s dependence on trade-based revenue.

While this contributed to strong overall revenue growth amid rising prices and import volumes, the report underscores the need to broaden direct tax collection to build a more balanced and progressive tax system.

Despite direct taxes posting a 36.7% year-on-year increase, their execution lagged significantly, reaching only 21.9% of the annual target compared with 34.7% for indirect taxes.