Ethiopia IC: Business Taxation Project

completed

The Tax Administration Component specifically aims at reducing the time and costs of dealing with business taxes, and broaden the tax base by increasing the number of small businesses registered for tax purposes. Specific work stream include: (1) Measuring and benchmarking compliance costs: starting with a mapping of all key tax procedures combined with a survey of compliance costs and informality to determine the key bottlenecks, as well as the root causes for non-compliance. (2) Simplifying tax administration: simplify tax procedures, eliminate duplicates and minimize administrative burden to spur voluntary compliance and make administration more efficient (see link to business licensing simplification) (3) Improving the presumptive tax regime: simplify existing schedule and re-assess presumptive methods, based on transparent and adequate criteria, with the objectives of improving voluntary compliance, spur formalization and broadening the tax net. This would additionally include developing training materials for small taxpayers in bookkeeping and accounting practices and tax compliance as well as strengthen Ethiopian Revenue and Customs Authority (ERCA) communications. (4)Strengthening the implementation of a risk-based approach to auditing, with the objective of rationalizing the administrative efforts of Ethiopian Revenue and Customs Authority (ERCA), as well as minimizing inspections-related costs on compliant taxpayers. (5) Reviewing the fiscal incentives regime and its impact on tax expenditure (i.e. revenue forgone through tax exemptions) with the objective of limiting revenue leakage and improve transparency and simplicity in incentives administration.