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Ethiopia Revenue and Expenditures
Resources were allocated among the various sectors of the
economy differently in the imperial and revolutionary
periods. Under the emperor, the government dedicated about
36 percent of the annual budget to national defense and
maintenance of internal order. Toward the end of the
imperial period, the budgets of the various ministries
increased steadily while tax yields stagnated. With a
majority of the population living at a subsistence level,
there was limited opportunity to increase taxes on personal
or agricultural income. Consequently, the imperial
government relied on indirect taxes (customs, excise, and
sales) to generate revenues. For instance, in the early
l970s taxes on foreign trade accounted for close to twofifths of the tax revenues and about one-third of all
government revenues, excluding foreign grants. At the same
time, direct taxes accounted for less than one-third of tax
revenues.
The revolutionary government changed the tax structure in
1976, replacing taxes on agricultural income and rural land
with a rural land-use fee and a new tax on income from
agricultural activities. The government partially alleviated
the tax collection problem that existed during the imperial
period by delegating the responsibility for collecting the
fee and tax on agriculture to peasant associations, which
received a small percentage of revenues as payment. Whereas
total revenue increased significantly, to about 24 percent
of GDP in EFY l988/89, tax revenues remained stagnant at
around l5 percent of GDP. In EFY l974/75, total revenue and
tax revenue had been l3 and ll percent of GDP, respectively.
Despite the 1976 changes in the tax structure, the
government believed that the agricultural income tax was
being underpaid, largely because of underassessments by
peasant associations.
The government levied taxes on exports and imports. In 1987
Addis Ababa taxed all exports at 2 percent and levied an
additional export duty and a surtax on coffee. Import taxes
included customs duties and a 19 percent general import
transaction tax. Because of a policy of encouraging new
capital investment, the government exempted capital goods
from all import taxes. Among imports, intermediate goods
were taxed on a scale ranging from 0 to 35 percent, consumer
goods on a scale of 0 to l00 percent, and luxuries at a flat
rate of 200 percent. High taxes on certain consumer goods
and luxury items contributed to a flourishing underground
economy in which the smuggling of some imports, particularly
liquor and electronic goods, played an important part.
Although tax collection procedures proved somewhat
ineffective, the government maintained close control of
current and capital expenditures. The Ministry of Finance
oversaw procurements and audited ministries to ensure that
expenditures conformed to budget authorizations.
Current expenditures as a proportion of GDP grew from l3.2
percent in EFY l974/75 to 26.1 percent in EFY l987/88. This
growth was largely the result of the increase in
expenditures for defense and general services following the
1974 revolution. During the l977-78 Ogaden War, for example,
when the Somali counteroffensive was under way, defense took
close to 60 percent of the budget. That percentage declined
after l979, although it remained relatively higher than the
figure for the prerevolutionary period. Between l974 and
l988, about 40 to 50 percent of the budget was dedicated to
defense and government services.
Economic and social services received less than 30 percent
of government funds until EFY l972/73, when a rise in
educational outlays pushed them to around 40 percent. Under
the Mengistu regime, economic and social service
expenditures remained at prerevolutionary levels:
agriculture's share was 2 percent, while education and
health received an average of l4 and 4 percent,
respectively.
Data as of 1991
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