The Corporate Tax Burden in Ethiopia: Evidence from Anonymised Tax Returns

Many low income countries face the challenge of increasing tax revenue dramatically while minimising distortions in the economy that may discourage investment and, more generally, economic growth. In this context, corporations have to contribute to the public purse but their tax burden should still allow them to prosper. Despite the importance of this topic, very little evidence is available so far on the corporate tax burden in many low-income countries, including Ethiopia. This paper fills this gap by calculating and analysing effective tax rates (ETRs) across Ethiopian corporations. ETRs are broadly defined as the ratio of taxes to income paid by a firm and represent the tax burden on firms. ETRs differ from statutory tax rates (those defined in the law) because firms can benefit from a range of legal provisions and other practices, such as aggressive tax planning, to reduce their tax burden. Therefore, despite a flat statutory rate, ETRs can vary across firms depending on size and sectors, amongst other firm-level characteristics.