The Ethiopian government is preparing to introduce a new motor vehicle ownership tax and establish a formal mechanism for sharing the resulting revenue between the federal government and regional states.
The proposal is expected to be submitted by the Council of Ministers to the House of Federation by the end of December 2026. If approved, the framework will take effect alongside the planned vehicle ownership tax in the 2027/28 fiscal year and provide a legal basis for distributing the revenue in accordance with constitutional provisions governing shared sources of income.
The new tax forms part of broader efforts to strengthen domestic revenue mobilization and increase Ethiopia’s tax to GDP ratio. Government projections indicate that the measure could generate revenue equivalent to 0.1 percent of GDP in its first year, rising to 0.2 percent in the second year.
Speaking at an African regional consultation earlier this month, State Minister of Finance Semereta Sewasew said Ethiopia’s tax to GDP ratio had increased from 6.2 percent to 8.2 percent over the past two years and is expected to reach 10.8 percent during the current fiscal year.
The initiative comes as the government seeks additional revenue sources to finance growing public expenditure. Ethiopia’s 2026/27 budget stands at Birr 2.339 trillion, with domestic revenue expected to contribute more than Birr 1.61 trillion, including Birr 1.49 trillion from taxes.
While experts acknowledge the need for stronger revenue collection, they have also called for careful design of the tax, including consideration of taxpayers’ ability to pay and distinctions between commercial and personal vehicles. With inflation remaining elevated at 13.4 percent year on year in May 2026, concerns persist over the burden the tax could place on households.
The government is expected to spend the coming months finalizing the legal framework, revenue sharing formula, collection mechanisms, and public awareness measures before the tax is introduced.
Source: Capital Ethiopia Newspaper
