Addis Ababa, June 2025 – The Ethiopian government, in partnership with the International Monetary Fund (IMF), has launched a comprehensive tax reform program aimed at improving domestic revenue mobilization, enhancing tax equity, and strengthening fiscal resilience.

At the heart of the reform is the removal of corporate income tax loopholes, a move designed to curb revenue leakage and ensure that all businesses contribute fairly to the national tax base. The government is also undertaking a major restructuring of the Value Added Tax (VAT) system to streamline exemptions and improve compliance, while overhauling the presumptive tax regime to make it more effective and equitable for small and medium-sized enterprises (SMEs).

As part of its medium-term revenue strategy, Ethiopia plans to introduce a set of new taxes, including:

• A motor vehicle ownership tax, to enhance environmental sustainability and broaden the tax base;
• A property tax, aimed at tapping into real estate value and improving local government revenue;
• And an environmental tax, focused on discouraging pollution and promoting green economic practices.

The IMF has emphasized that these reforms are essential for Ethiopia to meet its ambitious target of generating up to ETB 1.5 trillion in annual tax revenue. This represents a significant increase from current levels and is seen as crucial to funding the country’s expanding development priorities, including infrastructure, social protection, and public service delivery.

However, the reform process comes amid inflationary pressures, with annual inflation projected to approach 25% by mid-2025. Rising prices, largely driven by recent currency reforms and global commodity volatility, pose a challenge to household purchasing power and the overall economic recovery. The government and the IMF are closely monitoring the situation, with a focus on maintaining macroeconomic stability and protecting low-income households through targeted social safety nets.

According to the Ministry of Finance, these tax policy measures are part of a broader fiscal modernization effort, which includes digitizing tax administration, enhancing taxpayer services, and improving enforcement mechanisms. Through creating a more predictable, transparent, and inclusive tax environment, the government aims to reduce reliance on external borrowing and promote long-term economic self-sufficiency.

The reforms are aligned with Ethiopia’s commitments under the IMF’s Extended Credit Facility (ECF) and Extended Fund Facility (EFF) programs and are being implemented in close consultation with development partners and domestic stakeholders.