1, the history of 

taxation in Ethiopia can be seen in four major timelines. A, prior to 1941 B, 1941-1974 C,

1974-1991 D, 1991-now. 

A, Traditional tax system prior to 1941- In the Axumite Kingdom, there was a practice of traditional
taxation that was levied on crops, livestock and livestock products, hunting, and handcrafts. According
to Axumite Kingdom history, the Axumite Kingdom's tax system included trade-related taxes. Taxation in
the past varied greatly from region to region, and was often arbitrary, in that it had a tendency to
depend on the whim of the chief or tax collector. Taxes in Ethiopia until the early twentieth century,
were mainly paid in kind-or labor service, rather than in cash. In this period, there had been a system
called the Gebar System. ‘Gebar’ means a taxpayer, and gradually equated with a farmer. The Gebar
system, which imposed all tax burdens on the peasant, was inherently abusive. The Gebar supported all
emperors/princes, the imperial court, nobility, local officials, clergy, and the military. In the year 1858,
Emperor Tewodros was able to levy taxes in the parts of the country he controlled, and his officials kept
detailed tax records. The people pay a portion in kind to the Ras or another great chief, as well as a
regular tax in money, and they must provide oxen to plough the king's lands. Their immediate governor
then takes his share of every kind of grain and feeds a certain number of soldiers on each householder.
Emperor Menelik, the second, came to power in 1889. Emperor Menelik was a forerunner of Ethiopian
modernization. He also tried to modernize the country’s taxation system. Under his rule, clergy taxes
were among the forms of tax. One vivid development of this time in the area of taxation was the
foundation of the Ministry of Finance in 1908, which was responsible, among other things, for issues of
taxes.

B, 1944-1974- Emperor Haile Selassie began to modernize the tax system by enacting a land tax in 1942.
According to this law, tax rates vary mainly based on the fertility of the land. Then excise tax and
customs duties were introduced in 1943. Ethiopia's emperor Haile Selassie instituted modern income
taxation in 1944. In 1944, two pieces of income tax legislation were introduced. One was income tax on
agriculture by which individuals were subject to paying a tenth of their income in kind to the
government. The other income tax was on individuals’ businesses in the same manner. The second
income tax law was introduced in 1949. The 1949 income tax law was the first to introduce income tax
exemption in the form of a tax holiday for attracting investment, particularly foreign investment. The
1956 income tax law reorganized and replaced the 1949 income tax law. An Education tax in 1947 and a
health tax in 1959 were also introduced. The period 1967 was a very important history because the first
truly modern agricultural income tax was introduced. Raising taxes on personal or agricultural income
was difficult because the greater number of people lived at a subsistence level. As a result, the imperial
administration was funded through indirect taxes (customs, excise, and sales).

C. 1974-1991- In 1976, the revolutionary government restructured the tax system, replacing agricultural
income and rural land taxes with a rural land-use charge and a new tax on agricultural revenue.
During the imperial reign, peasant groups were entrusted with collecting the agricultural charges and
tax, for which they were paid a tiny proportion of the revenue. However, the administration has made
some progress in resolving the tax collecting issue during the Derg regime. Despite the 1976 tax reforms,
the government claimed that the agricultural income tax was underpaid, owing mostly to under-
assessment by peasant groups. Despite the government's inadequate revenue collecting systems, it kept
tight control over current and capital spending. Procurement was overseen by the Ministry of Finance,
which also reviewed ministries to verify that spending complied with budget authorizations. Between
l974 and l988, defense and government services accounted for around 40 to 50 percent of the budget.
Until l972/73, when an increase in educational outlays brought them to about 40%, economic and social
services received less than 30% of government funding.

D. 1991- until now: Beginning from the down fall of the Derg regime, the country needed a huge
economic reform to change the existed command economy. The reasons for a change were: outdated
tariff and tax laws; weak customs and tax administration; failure of the tariff and tax regime to attract
investment, to facilitate trade and to generate adequate revenue to cover current and capital
expenditure, and hence finance development and poverty reducing projects. As a result, it came up with
single and comprehensive tax laws including the Income Tax Proclamation No. 286/2002 which is
substantially modified by the new tax proclamation in 2016, Value Added Tax Proclamation No.
285/2002, which replaced sales tax, and Excise Tax Proclamation No. 149/1999. The tax base or
jurisdiction of Ethiopia was also broadened; uniformity of tax rates in the different tax brackets and
schedules was tried; and self-assessment was introduced. Moreover, the tax officers are empowered to
execute tax liabilities efficiently without the need to go to court for execution purpose after the liability
is proven. In addition to this in 1999 the then “Revenue Board" scaled up to the level of Ministry as
"Ministry of Revenue" as part of the reform. New comprehensive tax administration proclamation no
983/2016 has also been enacted. The series of tariff and tax reform programs have helped to increase
both Federal Government and national revenue. The increase in revenue attributes to the modest
increase in both direct and indirect taxes, mainly the foreign trade taxes.
2, A, Individualistic theory - Individualistic ideology would lead to man having as little contact with the
state as feasible. Every person needs safety and justice, and the state has a role in sustaining society's
security and order. As per this notion, taxes are considered as a quid pro quo or remunerative payment
made by taxpayers for services given. However, it has been demonstrated that such a viewpoint leads to
nonsensical results because protecting a guy who doesn't have many of this world's things costs the
same as protecting a wealthy person. It's also ludicrous to expect everyone to share the same amount of
money.

B, Socialistic theory- Adolph Wager, a well-known German economist, established this hypothesis.
According to him, the main elements in establishing our tax system should be social aims rather than
expediency. Wagner did not believe in approaching an issue in an individualized manner. He constantly
considered the problem in its social context and worked hard to find a suitable solution. As a result, he
believes that a tax policy should not be intended to meet the requirements of particular members of
society. He was particularly fond of the concept of utilizing taxation as a key tool for reducing income
disparities in society. To achieve this goal, he suggested that all minor incomes should be free from
taxation. Thus, according to this idea, taxes in a contemporary state are intended to reduce economic
inequities caused by property rights. Since State is the most definite institution in society, the State will
be the residual owner of all income which exceeds the requirements of maintenance and normal
growth. An even more developed version of the same idea would be for the State to use a significantly
graduated tax to try to level the current enormous disparities in the earnings of its individual members.
As a result, the socialistic ideal differs greatly from the individualistic ideal.

C, Ability to Pay Principle: Ability to pay taxation is a taxation principle that says taxes should be per the
taxpayer’s ability level. That is the main principle of implementing a progressive tax. Thus, people on
higher or richer incomes should pay higher taxes than those on lower incomes. Ability to pay taxation
contains two equities in it, namely horizontal and vertical equities. A, horizontal equity- People who earn
the same income must be charged the same tax rate. B, vertical equity- Under this principle, those with
different incomes should be subject to different taxes. Governments impose taxes to pay for services,
like public schools, roads, police, etc. The ability-to-pay theory of taxation does not take into
consideration the amount of these services that taxpayers actually use. For instance, all taxpayers
contribute to public schools, even if they do not have any kids in a school system.
3, Argument for the newly introduced proclamation no 1186/2020

The first reason why I support the new proclamation is that it made Registration and licensing
mandatory. The new excise law requires anybody seeking to manufacture excisable goods in Ethiopia or
import excisable goods to apply for a license, as per article 15(1), 16 and 17, and 18 of Proclamation No
1186/2020. The tax Authority (the Ministry of Revenue or the Tax Authorities of regional governments)
has been given the authority to issue, deny, or cancel licenses based on the criteria outlined by law.
Excise license holders are required under the new law to report information on all modifications to their
manufacturing plants/machinery, constitutions and ownership of the firm, and change of address to
their businesses, among other things, by virtue of article 19 and 26 of the new proclamation. . However,
if a person imports, manufactures, or performs services without a license or registration, he will be held
accountable under Article 39, 15(2), and (3). The tax authority has unrestrained power of issuing,
suspending, and revoking licenses given to manufacturers and importers of excisable goods.

Secondly, some excisable products that were formerly subject to excise duty, such as dolls, laundry
machines, and watches, are now excluded from the list of excisable products under the new excise law.
The new law, on the other hand, includes a list of new excisable products, such as used tractors, plastics,
pyrotechnics, chocolate, artificial hair, and pearls. While telecommunications services were initially
included on the list of excisable services subject to a 5% tax, the final measure adopted by Parliament
removed them from the list. Furthermore, numerous products have had their rates adjusted as a result
of the new excise law. Locally assembled and produced vehicles or new cars (with an engine size of no
more than 1300 cc), bottled water, sugar confectionery items, textile products, and audiovisual items
are among the products that have seen rate reductions. On the contrary, a considerable tax rate
increase on select products (especially used cars) has been implemented, sparking debate on the
propriety of such a change.

Thirdly, In the case of locally manufactured items, the new excise law shifts the basis for excise tax
assessment from the old ‘cost of production of products' to the ‘ex-factory sales price.' This change was
needed because of frequent debates over whether some costs such as corks, labels, cigarette packets,
and plastic bottles deemed as marketing/packaging expenses by manufacturers constituted the cost of
final goods manufacturing. Ex-factory sales price is defined as the open market value of the goods at the
time of removal from the manufacturer’s factory (as determined by the Tax Administration
Proclamation). Under the repealed proclamation, the basis for calculating excise tax on imported goods
was cost, insurance, and freight. In contrast, under the new excise law, the basis of computation for
imported goods is the sum of the 'customs value of the goods and the customs duty payable on the
goods' (as determined by the Customs Proclamation). Moreover, licensed manufacturers are allowed to
offset excise tax paid on the raw materials against the excise tax payable on finished goods. This
approach, however, will not apply to alcohol, cigarette, or sugar manufacturers.

Fourthly, The Ministry of Finance is given the authority to alter (to increase or reduce) the excise tax
rates of excisable items by a sum not exceeding ten percent (10%), implying that excise tax rates on
excisable commodities will most likely alter from year to year. Finally, except for chat, the repealed law
normally applied an ad valorem assessment (the tax represented as a proportion of the cost or value
assessed). Excise tax for chat was levied using a specified tax rate, which is a sort of assessment that is
based on volume, weight, or any other unit of measurement. While the new excise law preserves ad
valorem assessment for most products, it has created a hybrid assessment (ad valorem and/or specified)
for a select product, including beer, plastic bottles, and cigarettes.

Fifthly, Excisable items maintained in the factory of a licensed manufacturer are assumed to be under
the Authority's excise supervision until they are removed from the factory, exported from Ethiopia, or
destroyed in accordance with excise law rules. The new law imposes requirements on producers in
order to aid the Authority's control efforts. Manufacturers are required to keep metering/measuring
equipment in order to account for or gauge excisable goods and materials under excise control in order
to ensure appropriate accounting of excisable goods under excise control. The new excise law also puts
other requirements on manufacturers, such as the duty to record and document excisable commodities
for correct accounting. Furthermore, the new excise law states that the Ministry of Finance may issue a
directive mandating the use of excise stamps on certain products. Nonetheless, when the directive is
released, the scope and features of excise stamps will be known. The excise stamp regime is designed to
improve tax collection, aid in the tracking of excisable commodities, and minimize the presence of
counterfeit goods in Ethiopia.

The sixth reason why I support the new excise proclamation is: The new excise law specifies goods that
are not subject to excise tax (exempt), including but not limited to: goods exported under customs
control or stored in approved warehouses; goods destroyed prior to removal from the factory with the
Ministry of Finance's pre-approval; and goods supplied to entities that are exempt from excise by law or
instances where such goods are lost or destroyed by ac Regarding commodities to be destroyed with the
Ministry's approval, one controversial topic that we expect to concern manufacturers of excisable
products is the speed with which the Ministry answers to the request for pre-approval. Furthermore, the
new excise law states that the Authority may refund excise tax paid by taxpayers if the following
conditions are met: the goods were damaged or stolen during the voyage or transportation to Ethiopia;
the goods were damaged or destroyed while under excise control; the buyer returned the goods to the
seller in accordance with the contract of sale; or the excisable goods were used.

Lastly, a breach of the new excise tax law by a licensee has consequences having administrative and
criminal implications. A breach of some of the provisions of the new proclamation could result in double
the excise tax that would have been payable while some of the rather serious offenses could result in a
rigorous imprisonment of up to 7 years and a fine of 200,000 Ethiopian Birr. Finally, it is noteworthy that
the Tax Administration Proclamation No. 983/2016 is to apply on matters and offenses not specifically
covered under the new excise law.

Argument against the new excise proclamation

The first reason why I am against the new proclamation is that There was no transition time given to the
manufacturers, they are forced to prepare manual invoices, which separately shows the amount of
excise tax payable in the transaction as the new law requires the amount of excise tax should be
separately shown in the invoice. The tax authority should not solely aim to collect much revenue at the
expense of the sustainability of manufacturers, because in the long run it will also affect the country’s
effort to do business easily and attracting foreign investment.

Secondly, The Ministry of Finance is given the authority to alter (to increase or reduce) the excise tax
rates of excisable items by a sum not exceeding ten percent (10%). As a result, excise tax rates on
excisable commodities will most likely alter from year to year. This rule appears to be troublesome in
terms of ensuring the consistency of excise tax rates for excisable commodities. Fourthly, given the
absence of clarity on assessing open/fair market value, taxpayers are given additional obligation to pay
close attention to how the value of products is determined for excise tax purposes. Hence, Taxpayers is
supposed to be attentive about whether market pricing methods such as discounts and promotions
affect the estimation of the fair market value of their products for excise tax assessment.

Thirdly, Despite the greater transparency of excise tax assessment brought about by tax base shifts, it is
crucial to remember that the new excise law will increase the tax base for taxpayers.

Lastly, there are discrepancies between the Amharic and English versions.