Ethiopia Collected Birr 1.518 Trillion This Year. Who’s paying?

The Ministry of Revenues just announced a number that sounds like triumph: Birr 1.518 trillion collected in the 2025/26 fiscal year, beating a revised target and marking a 68.69 percent jump from the year before. Officials are calling it proof that reform is working. But a bigger number does not automatically mean a healthier economy for the people paying into it. The real question is not whether the treasury is growing. It is who is filling it, and at what cost to their own household budget.

A record built on a shrinking currency

Start with the math nobody is putting in the headline. A 68.69 percent jump in collections would be remarkable in a stable economy. In Ethiopia, it happened during a year when inflation climbed back to 13.9 percent by June 2026, food prices rose even faster, and the birr kept losing value against the dollar. When prices rise and the currency weakens, tax collected in nominal birr rises automatically, on VAT, on customs, on every invoice, without the government lifting a finger. Much of this "record" is arithmetic, not new productive capacity.

That is visible in the ratio that actually matters: tax revenue as a share of GDP. Officials have themselves admitted the country was collecting only about 6.8 percent of GDP in taxes, with an ambition to reach 10 percent within three years. Independent analysis shows the ratio actually fell from 12.4 percent to 7.5 percent between 2014/15 and 2022/23, and as of 2024/25 stood at 7.3 percent of GDP, still among the lowest in Sub-Saharan Africa. So while the birr figure looks historic, the government's actual claim on the economy remains thin. The trillion-birr headline is a currency illusion sitting on top of a genuinely weak tax base.

Trade taxes, not income taxes, are doing the heavy lifting

Here is where the "who pays" question gets answered in the numbers. Of the 1.518 trillion birr collected, 780.4 billion came from domestic taxes and 738.2 billion from foreign trade duties. That means customs duties, import VAT and trade surtaxes, taxes baked into the price of fuel, cooking oil, medicine and machinery, made up nearly half of everything collected. These are consumption taxes. They do not ask how much a person earns. A farmer buying diesel and a factory owner buying diesel pay the identical rate, but the farmer feels it as a much larger share of what little income he has.

Direct taxes on income and profit tell a smaller story. In its own budget projections, the government expects only 263 billion birr from corporate tax, 97 billion from payroll tax, 22 billion from dividends and 12 billion from interest income next year, a combined 394 billion birr against a projected tax haul north of 1.5 trillion. Put simply, direct taxes on wages and business profits make up roughly a quarter of the pie at most; consumption and trade taxes make up the rest. A tax system dominated by VAT and customs is, by design, regressive: it takes proportionally more from someone who spends nearly all their income on food and transport than from someone who saves a large share of theirs.

The wage earner's ledger

To be fair, there has been a real adjustment for salaried workers. The Income Tax Amendment Proclamation No. 1395/2025 raised the tax-free monthly threshold from 600 birr to 2,000 birr, exempting the lowest earners entirely. Labour unions had pushed for a much higher exemption, up to 8,300 birr, arguing that anything less still taxes people living near the poverty line. Parliament rejected that proposal and kept the threshold at 2,000 birr, a fraction of what unions say a livable income requires.

Civil servants also got a nominal raise in September 2025, with minimum pay moving from 4,760 to 6,000 birr and top salaries nearly doubling. But with food inflation running above 15 percent for much of the year, a raise negotiated once has to survive twelve months of rising bread and transport costs. Wage growth on paper and wage growth in the shopping basket are two very different things, and the second one is losing.

The majority sit outside the formal net entirely

The deepest imbalance is structural. Roughly 80 percent of Ethiopia's workforce still works in agriculture or informal services, outside any payroll tax system altogether. These citizens never file a PAYE return. Their only contact with the tax system is indirect: the VAT folded into a bag of teff, the customs duty folded into a liter of fuel, the excise tax folded into a bar of soap. They cannot be exempted the way a salaried employee can be, because the tax is invisible, embedded in price rather than deducted from a payslip. As trade and consumption taxes now supply the government's biggest single stream of revenue, this informal majority is quietly carrying a disproportionate share of the load, without ever appearing in an income tax bracket.

The verdict in the numbers

Government revenue is genuinely expanding. But the composition of that expansion tells a specific story: trade duties and consumption taxes, paid by everyone regardless of income, now outweigh income and profit taxes that would fall more heavily on the wealthy. Inflation is inflating the treasury's take even as it erodes real household purchasing power. The state is not necessarily growing at citizens' expense by design, but the mechanics of how it is growing land hardest on low- and middle-income Ethiopians, the ones who spend rather than save, and the ones who were never inside the formal tax net to begin with.