Ethiopia’s Tax Revenue Hits 1.1 Trillion Birr, but Structural Gaps Persist
Ethiopia’s fiscal authorities are reporting a sharp acceleration in revenue mobilisation, with the Ministry of Revenue Ethiopia collecting 1.1 trillion birr in the first nine months of the 2025/26 fiscal year.
The figure represents a 68% year-on-year increase, up from 653 billion birr in the same period last year—marking one of the strongest revenue performances in recent years and reinforcing a trend of sustained fiscal expansion.
Revenue Growth Gains Momentum
The latest performance builds on the 74% growth recorded in the 2024/25 fiscal year, suggesting a continued upward trajectory in domestic resource mobilisation.
According to the Ministry, the increase has been driven primarily by:
- Domestic direct taxes, which remain the largest contributor
- Improved value-added tax (VAT) collection
- Enhanced tax debt recovery mechanisms
These gains reflect both administrative improvements and intensified enforcement measures across the tax system.
Tax-to-GDP Ratio Remains a Concern
Despite the record collection, structural challenges persist. Minister Aynalem Nigussie emphasized that Ethiopia’s tax-to-GDP ratio remains significantly below potential.
This concern aligns with earlier remarks by Abiy Ahmed, who noted that tax revenue equivalent to 7% of GDP falls well short of the government’s target of 18.2% by 2029/30.
The gap highlights a central issue: while collections are rising in absolute terms, tax efficiency relative to economic output remains low.
Reform Agenda Targets Expansion and Efficiency
To address this imbalance, the government is intensifying reforms aimed at:
- Expanding the tax base
- Improving VAT system efficiency
- Strengthening compliance and enforcement
- Targeting high-potential, under-taxed sectors
A key component of this effort is the Digital Transformation Strategy 2030, designed to modernize tax administration through technology-driven systems and data integration.
Enforcement Efforts Reveal Systemic Leakages
Alongside revenue gains, enforcement data underscores ongoing structural leakages within the system.
During the comparable nine-month period of the previous fiscal year:
- Smuggled goods worth 15.6 billion birr were confiscated
- 7,583 audits generated over 60 billion birr in additional tax assessments
- 641 entities were flagged for suspected tax fraud
Further findings revealed:
- 235 businesses using fake invoices totaling 3.4 billion birr
- 19 entities concealing more than 5 billion birr in taxable income
- 597 individuals apprehended for non-compliant transactions
These figures illustrate the scale of informality and compliance gaps still affecting revenue performance.
Digitisation and External Support
Modernisation efforts are being supported by international partners, including the World Bank, with ongoing projects aimed at improving system efficiency and transparency.
According to project coordinator Biruk Sewnet, these initiatives are expected to streamline tax collection processes and strengthen long-term administrative capacity.
A Dual Narrative: Growth and Constraint
Ethiopia’s revenue performance presents a dual narrative. On one hand, rapid growth in tax collection signals improved administrative capacity and policy execution. On the other, low tax-to-GDP ratios and persistent compliance gaps point to deeper structural challenges.
For policymakers and financial sector stakeholders, the trajectory is clear: sustaining revenue growth will depend less on incremental gains and more on system-wide transformation—expanding the base, closing leakages, and digitising administration at scale.